Free Cash Flow: A Simple Indicator Of A Company’s Health

When you take out debt, or use the credit line, that influx of cash does not show up in the profit and loss statement. Neither does the repayment of said debt. This is true for bank loans, owner loans, and credit cards. As business picks up, and cash is used to repay this debt, you may show a solid profit on your P&L, but not have anything in the bank. Not to worry, your overall asset picture is better (but that’s on your balance sheet).

The FCF can be used for several purposes, including paying a dividend, buying back stock, lowering debt, or saving for future acquisitions. Without FCF, a company will find it hard to grow its business without issuing new debt or diluting the stock. Except for start up corporations that will often show negative cash flow in their beginning years, free cash flow is a good indicator of a company’s ability to both maintain and increase its operations.

As an investor, it is important to see how the company uses their cash. You should be able to accomplish this by delving into the cash flow examples. You will be able to gain some insight into the management’s strategy and the future of the company. Is the company spending money on globalization or focusing on a new brand of product? A red flag should go up when you see the company borrowing too much because it could force them to use their cash to pay the interest rather than using it more productively.

That wasn’t so hard. Maybe I can do this. With newfound confidence I forged ahead to the next section. Marketing. More specifically defining my target market. Who was my customer? I was going after the wedding industry’s customer base. So I hopped on the Internet and went to the census bureau’s website and did a search for marriage statistics in my state. From that I was able to determine how many people had gotten married in recent years. I wrote a few paragraphs about that info.

First, understand the income or profit and loss statement is not the same as cash flow. These are valuable analytical tools but only measure performance at a specific moment in time.

Well, banks like to see that the cost of your monthly mortgage payment, taxes, insurance, and utilities will not place an undue burden on your finances.

If you already have a well-funded emergency fund and your short-term goals have been funded, you might funnel all of the ten percent into a retirement plan. Of course if you set aside 10% in your retirement plan, you’ll be contributing pre-tax which works out to be more than 10% after-tax.

Equity Financing: You issue your equity ownership with the use of common shares. What’s nice about this option is that the capital you borrowed is interest-free and there’s no need for you to pay it back. However, your investors will become part-time owners of your business and may have an influence on you and on how to manage the business.