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by Dwolb 3626 days ago
I had a financial accounting professor who would recount the quote, "Profit is an opinion, but cash is a reality."

The 10k's we would go over took a lot of analysis to understand financially and operationally if the company is in good shape based on the stated numbers.
1 comments
samfisher83 3626 days ago
Definitely not true. You can manipulate cash flow. For example you can give your customer a sweet heart deal where you give your customer a massive discounts on future orders for upfront payment you get a lot of cash the current q, but you are hurting yourself in future q. You can also increase you ap and make cash flow better.you can also pay employees with stock and increase cash flow, but decrease share holder value.
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Dwolb 3626 days ago
Sure that's the cash flow statement. When looking at free cash flows one would take into account changes in net working capital and adjust accordingly.
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samfisher83 3626 days ago
From investopedia:

Free cash flow is most commonly defined as operating cash flow minus capital expenditures

You would need to make adjustments to the cash flow if you wanted to account for the extra liabilities since that doesn't use cash in the current quarter.

My point is cash flow can be manipulated just like income statements. You really need to look at income statement, cash flow, and balance sheet to know what is going on.

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Dwolb 3625 days ago
That's the investopedia definition.

Here's an alternate definition (and you'd adjust based on a given industry or company)

Start with Net income + expenses not using cash (such as depreciation and amortization) - revenues not providing cash (such as recognition of deferred revenues) - increase in working capital or + decrease in working capital - increase in required cash balances or + decrease in required cash balances + interest paid in cash (recall that all firms must disclose this number) - interest tax shield (the tax “savings” from financing charges due to the tax deductibility of interest) - long term capital investment (including, but not limited to capital expenditures or “CAPEX”) + cash from sales of assets (including sales of PPE)

= Free Cash Flows to the Unlevered Firm

You'd continue on with more calculations to get to free cash flows to common equity or whatever you're interested in.

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