While free cash flow doesn't receive as much publicity as earnings do, it is considered by some experts to be a better indicator of a company's bottom line.
Free cash flow is the amount of cash that a company has left over after it has paid all of its expenses, including investments.
Whereas earnings reports are subject to a number of different accounting tricks which can artificially boost the bottom line, free cash flow is not.
It is quite possible, for example, for a company to have positive earnings and negative free cash flow.
Negative free cash flow is not necessarily an indication of a bad company, however; many young companies tend to put a lot of their cash into investments, which diminishes their free cash flow.
But if a company is spending so much cash, you should probably be investigating
- why it is doing so and
- what sort of returns it is earning on its investments.
http://www.investorguide.com/article/11625/the-three-parts-of-cash-flow-statements-explained-igu/
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