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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 / Technology
Tuesday, June 10, 2008
Three Days in the Valley: LinkedIn's Dan Nye on Going Public
FOXBusiness
Dan Nye, chief executive officer of the professional social network site LinkedIn, told Fox Business anchor Liz Claman the Internet startup is growing and profitable, but is not considering an initial public offering in the near future.
The interview came as part of Fox Business’s three-day series called “Three Days in the Valley.”
Nye said LinkedIn, which is often considered the corporate-equivalent of social networking sites Facebook or MySpace, now has 23 million members and is the “fastest growing social network” on the Internet.
“It’s all about productivity, not about photo sharing or music,” he said.
Unlike the more popular Facebook, which was recently valued at $15 billion but has yet to find a way to be profitable, Nye said that LinkedIn is profitable and growing revenue at a "considerable pace."
LinkedIn’s profitability has made the Silicon Valley startup a speculative takeover target.
Nye said he has been approached by the “usual cast of characters” about a partnership or merger, but declined to say who or the degree of talks LinkedIn was currently in.
He did say that Nye’s company was considering raising
additional venture capital
“to strengthen the balance sheet” and would take it “under the right conditions.”
When asked if LinkedIn would consider going public, he said “It’s a ways off.”
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