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Just as your pulse is checked during a routine physical, free cash flow is used as an indicator of a company's health. It equals the cash brought in from operations minus the money needed to pay the bills. Think about leftover money in your checking account after you pay this month's bills.
Investors and analysts see this leftover money as a gauge of a company's ability to perform. It is available for transactions such as handing out dividends and working on new products.
Some argue free cash flow is wrongly overshadowed by the emphasis often placed on earnings. Earnings numbers can be manipulated and don't always tell the whole story -- and earnings don't mean much if there's nothing left over after a company pays its expenses. Even if you bring in a six-figure salary, but no money left after paying the bills, are you in great financial shape?
You don't have to be Einstein to figure out free cash flow. To calculate the number, subtract the company's expenditures and dividends from its operating cash flow.
If the free cash flow is written in red ink, it doesn't necessarily signal curtains. This is common for young companies looking to grow. It also could be a result of heavy investments, which in the long run could be worth a standing ovation.
Home / Markets / Industries / Finance
Tuesday, July 01, 2008
CIT Group Sells Its Home Lending Businesses for $1.8B
Aude Lagorce
MarketWatch Pulse
LONDON--Commercial finance company CIT Group, Inc. said it will sell its Home Lending business, consisting of $9.3 billion in assets and related servicing operations, to Lone Star Funds for $1.5 billion in cash and the assumption of $4.4 billion in debt and other liabilities.
In a separate transaction, CIT said it's agreed to sell its approximately $470 million manufactured housing portfolio to Vanderbilt Mortgage and Finance for roughly $300 million.
Net cash proceeds from the two transactions are expected to be approximately $1.8 billion.
"These sales complete our exit from all home lending businesses, removing the uncertainty surrounding this asset class, and advances our strategic transformation into a company focused entirely on commercial finance," said CIT CEO Jeffrey Peek. In the second quarter CIT expects to report a pretax loss for the Home Lending business of $2.5 billion.
Copyright © 2008 MarketWatch, Inc.
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