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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.
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Thursday, August 07, 2008
Citi Reaches Settlement Over Securities Probe
FOXBusiness
Citgroup has reached a settlement with the Securities and Exchange Commission’s Division of Enforcement and New York Attorney General, Andrew Cuomo for more than $7 billion. The settlement mandates the company buy back the auction-rate securities that it sold to its customers.
“This resolution will make a big difference for a lot of people,” Cuomo said in a press conference on Thursday. “Over 40,000 people nationwide…will have securities redeemed and the total value of securities is about $7 billion, so it affects a lot of people, I believe it will help restore confidence in this marketplace and in these difficult financial times it’s a positive resolution that does justice for consumers."
Last week, Cuomo threatened to sue the company for “repeatedly and persistently” omitting and misrepresenting facts when marketing and selling auction-rate securities, according to the Wall Street Journal.
Citi will have three months, or until Nov. 5, to buy back the auction-rate securities from the individual investors, small businesses, and charities that purchased them.
The agreement also requires the Citi “to use its best efforts” to liquidate the near $12 billion in auction-rate securities it sold to institutional investors and retirement plans by the end of 2009.
Citigroup will make two $50 million civil penalty payments; one to the state of New York and the other to the North American Securities Administrators Association.
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