Individual Stocks

Price / Earnings Ratios and Other Calculations

What are “cash flows”?

A corporation’s cash flow tells how much money is flowing into (on the revenue side) and flowing out of (on the expense side) a corporation. Its analysis is often a key metric to understand if a company is doing well. It also may indicate the overall financial stability of a company’s goods or services, and ultimately the legitimacy of the value of the company’s shares. Free cash flow analysis may show an investor how well a company can pay its debts and obligations, distribute profits generated in the form of dividends, affect the price of his shares by buying back stock, and make investments in the company for marketing, product development, innovation, etc. According to many experts, superficial cash flow analysis often may not reveal a true picture as to what is happening in a company, as companies may conceal problems and hide successes, and strategically release information when it is most beneficial.


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