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Free Cash Flow

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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Google CEO: Stock Split 'Unlikely'

 
FOXBusiness
 
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Eric Schmidt, CEO of Google, told Fox Business in an exclusive interview today  splitting shares of Google is “unlikely,” although “you never say never.” 

“We think that a high stock price is a symbol of the kind of shareholder that we want,” Schmidt said, adding that a shareholder who would buy the stock at a high price understands the “long-term vision” of what Google is trying to do.

Google (GOOG) has also considered starting a venture capital fund, according to Schmidt, who said that “most of the corporate [venture capital funds] don’t do as well as the private ones.” He said the venture capital model is one that Google likes because it creates a lot of jobs and new businesses in the U.S.

However, Schmidt doesn’t believe Google will start their own venture capital arm, but that they might invest in conjunction with other venture capital funds.

As for the deal with Microsoft, Schmidt said Microsoft understands “the value of end users.”

“We’ve always felt that Microsoft could use the tremendous position that they have in the personal computer market to affect the way people used information, either in a hostile way or a creative way, depending on what they chose to do, so in that sense, they compete for end users,” he said.

Watch: Part 2, Part 3.

For Google’s main competitors, Schmidt named Yahoo (YHOO) and Microsoft (MSFT) as the top two, and said there were a “number of smaller competitors that are emerging in ad networks and so forth, so it’s a highly competitive market.” However, “in the long run we’ve always believed that the focus on the end user would take us up against Microsoft,” he said.

As far as how Google would navigate any antitrust issues that would arise with a Yahoo partnership, Schmidt replied,  “If there were [antitrust issues] it’s perfectly possible that you could do commercial deals that look like outsourcing deals, which are non-exclusive and industry structures allow everybody to win, and this is extremely common in modern markets. If you look at the automobile industry and other industries like that, you have suppliers who supply other people,” Schmidt said. “So if there were a deal, it would be based on those sorts of principles.”

When asked if he spoke to Carl Icahn or had played a role in the Microsoft/Yahoo developments, Schmidt replied, “We’ve not been involved in that fight. It’s an important issue, but not one that Google has a particularly strong role in. We do believe that an independent Yahoo is a better outcome.”

Schmidt said that to tackle his competitors, Google was investigating their next moves, and he named cloud computing, “interesting ideas around end-user services,” and possibilities in advertising future options for the company.

When asked about cloud computing, Schmidt said that the last time he checked, Google wasn’t charging $800 for a suite of products. He continued to say the transition to cloud computing had “winners and losers,” and Internet companies would have to adapt their business models accordingly.

“So far, we don’t see a model that’s better than relatively free end-user use that’s advertiser supported,” Schmidt said.

He added globalization was a “wonderful thing for Google,” highlighting that international markets were growing faster than domestic ones.

Although he acknowledged there were great opportunities for acquisition in other parts of the world, he said that Google had looked at possibilities very carefully, and decided that organic growth was best.

“For most of our international operations, they’ll grow organically,” he said.

Claman asked Schmidt about his investments in mobile technologies and android.

“It really comes from the view of cloud computing. If all of your information exists in some set of servers somewhere, you’re going to want to have many different devices to access the information. We have an offering which will help that…called android.”

Android is built on a completely open system platform, and is free, according to Schmidt and a number of hardware and systems manufacturers were looking at it.

“I used to think a phone was for talking, but in the future, you’re not going to use it just for talking,” he said, highlighting that people would use their phones for “everything.”  

When asked what challenges the company might face in coming years, Schmidt said that issues of scale were “paramount” for Google as a whole.

“We’ve grown quickly, you have all of the issues of global company, career path, who’s doing what, lots of different development centers, overlap, those kinds of things—that’s what we work on every day,” he said.

Google is often criticized for not being transparent enough with its advertising business, and Schmidt said he understands the criticism, and it’s one even he would make.

“The reason why we haven’t made it as transparent as some people would like is that we are always changing those systems, and we’re worried that people might become attached to one part of the system, and we tune them based on measured end-user quality,” Schmidt said.

Schmidt said Google’s “no guidance” policy had been very controversial, but that it had “served them well.”

As far as long-term goals, Schmidt said, “We want a little piece of Google in every piece of internet, and I don’t mean Google as a website, I mean… some way in which Google makes your internet experience that much more powerful.”

 
 

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