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United States, California, San Jose, English, Hindi, Male, 31-35, Watching movies, Reading, Writing.

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Ashish's Niti

Niti in Sanskrit means policy/strategy/vision. This blog hosts my political views, along with news and commentary. This blog has moved here.

Wednesday, September 01, 2004

Investing - Don't get fooled by Free Cash Flow

The Motley Fool , once again, proves that it is the best site for investor eduction. Today's article, titled Free Cash Flow Illusions, by Rich Smith, explains how calculating free cash flow using easily available financial information (such as from Yahoo! Finance) can be misleading. Calculating free cash flow requires understanding of company's operations (cash flow from operations) and also company's capital requirements (minus capital expenditures). The article illustrates this point with an example of the Blockbuster. Blockbuster considers acquistion of rental library as capital expenditure (as per its earnings release). However, Yahoo! finance site, eventhough technically correct, does not take this into account. This can result in serious miscalculation on the part of the investor. Read the whole article carefully!

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