BULLS & BEARS: Analyzing ‘free cash flow’ key to valuing businesses
Companies report their earnings as net income, a figure calculated according to generally accepted accounting principles, or GAAP. But that number often provides the investor with a distorted picture of what really took place. Net income often includes various non-cash items that obscure the actual cash flows within the company. Because of this problem with reported earnings, analysts often turn to a company’s “statement of cash flows” and retrieve a figure called “cash flow from operations” or “operating cash flow.”…