Go to Jeff Salisbury LWGate Home Page.From: "Winston Little" <wlittle1@peoplepc.com>
Subject: [CANSLIM] Cash Flow
Date: Mon, 6 May 2002 15:13:00 -0400
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Gene R:
Here is the real answer on Cash Flow:=20
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Ask Bill O'Neil Archives
Thursday, January 03, 2002=20
=20
"Could you define cash flow in simple terms so that I can =
understand it?"=20
- Submitted from Saginaw, Texas=20
=20
When a company gets paid by a customer, cash goes into its =
coffers. When the company spends cash to renovate an old plant, cash is =
going out. The sum of all these cash-based transactions is the cash =
flow. Investors should pay close attention to cash flow because it shows =
whether or not the company has enough cash on hand to run its business =
smoothly. A high cash flow also indicates the company has the financial =
resources to make new investments - be it in new staff or executives, =
more stores, or even buying back its own shares - in order to further =
grow earnings. You can study a company's cash flow by looking at its =
10-Q or 10-K filings with the SEC. After the income statement usually =
comes the statement of cash flows. This is divided into three parts: =
cash flow from operations, cash flow used in investing activities, and =
cash flow provided by or used in financing activities. In general, you'd =
like to see operating cash positive, meaning the company is getting more =
cash than it's giving out. If investing cash flow is negative, that's =
usually a good sign because the company is likely investing in the =
future growth of the company. The same goes for financial cash flow. =
However, it is important to look at the individual items to understand =
what's going on. For instance, financial cash flow might be positive =
because the company sold a lot of corporate bonds. If it already has =
long-term debt, that could be a bad sign. When looking for good stocks, =
figure out the stock's annual cash flow from operations per share and =
compare it to its earnings per share for the same period. When cash flow =
per share is higher than the EPS, it's usually a good sign. It is, =
however, just one of many components of a fundamentally strong stock. =
Sales and earnings growth, for example, are other important elements.=20
=20
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<DIV> <FONT size=3D2>Gene R:</FONT></DIV>
<DIV><FONT size=3D2></FONT> </DIV>
<DIV><FONT size=3D2>Here is the real answer on Cash =
Flow:</FONT></DIV></TD></TR>
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<TD vAlign=3Dtop><FONT size=3D2> =20
<H2 class=3Dtxthead>Ask Bill O'Neil Archives</H2><SPAN =
class=3Dtxtsub><!--, , -->Thursday, January 03, 2002=20
</SPAN><BR> </FONT></TD></TR>
<TR>
<TD class=3Dcopy vAlign=3Dtop><FONT size=3D2><IMG height=3D25=20
src=3D"http://www.investors.com/images/staQ.gif" width=3D38 =
align=3Dleft=20
border=3D0> "Could you define cash flow in simple terms so that I =
can=20
understand it?"</FONT></TD></TR>
<TR>
<TD class=3Dcopy vAlign=3Dbottom align=3Dright><FONT=20
size=3D2><B><I>- Submitted from Saginaw,=20
Texas</B></I></FONT></TD></TR>
<TR>
<TD class=3Dcopy vAlign=3Dtop><FONT size=3D2> <BR><IMG =
height=3D25=20
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<A target=3D_blank=20
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href=3D"http://oas-central.realmedia.com/RealMedia/ads/click_lx.ads/www.i=
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width=3D2 border=3D0></A> When a company gets paid by a customer, =
cash goes=20
into its coffers. When the company spends cash to renovate an old =
plant,=20
cash is going out. The sum of all these cash-based transactions is =
the=20
cash flow. Investors should pay close attention to cash flow =
because it=20
shows whether or not the company has enough cash on hand to run =
its=20
business smoothly. A high cash flow also indicates the company has =
the=20
financial resources to make new investments — be it in new =
staff or=20
executives, more stores, or even buying back its own shares =
— in order to=20
further grow earnings. You can study a company's cash flow by =
looking at=20
its 10-Q or 10-K filings with the SEC. After the income statement =
usually=20
comes the statement of cash flows. This is divided into three =
parts: cash=20
flow from operations, cash flow used in investing activities, and =
cash=20
flow provided by or used in financing activities. In general, =
you'd like=20
to see operating cash positive, meaning the company is getting =
more cash=20
than it's giving out. If investing cash flow is negative, that's =
usually a=20
good sign because the company is likely investing in the future =
growth of=20
the company. The same goes for financial cash flow. However, it is =
important to look at the individual items to understand what's =
going on.=20
For instance, financial cash flow might be positive because the =
company=20
sold a lot of corporate bonds. If it already has long-term debt, =
that=20
could be a bad sign. When looking for good stocks, figure out the =
stock's=20
annual cash flow from operations per share and compare it to its =
earnings=20
per share for the same period. When cash flow per share is higher =
than the=20
EPS, it's usually a good sign. It is, however, just one of many =
components=20
of a fundamentally strong stock. Sales and earnings growth, for =
example,=20
are other important elements.=20
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