Individual Stocks

Price / Earnings Ratios and Other Calculations

Why are cash flow-based metrics important to analyze equities?

When deciding to invest in a stock or equity, many analysts believe that any increases in available cash could positively affect a company’s earnings or profits. The opposite is also often true. Companies that report declining cash may have some profit problems in the near term, as earnings then begin declining. When a company has plentiful and growing available cash, and its share price is relatively low, value investors see acquiring this company’s stock as a great move; over time the company may be more capable of creating profits in the future than what the market believes today, as reflected in the current share price.



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