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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
Thursday, August 28, 2008
Dell Shares Dive as 2Q Profit Falls 17%
FOXBusiness
Tech giant Dell missed Wall Street’s expectations for second-quarter earnings and warned it sees weaker spending ahead, pushing its shares sharply lower late Thursday.
Dell's (DELL) net income fell 17% to $616 million, or 31 cents per share, from $746 million, or 33 cents per share, a year ago. The company’s revenue rose 11% to $16.4 billion.
Analysts had been expecting a profit of 35 cents per share on sales of $15.95 billion, according to data compiled by Thomson Reuters.
Shares of Dell sank more than 10% in after-hours trading.
Dell, the world’s second-biggest PC maker, warned it sees conservative IT spending in the U.S. continuing and spreading to western Europe and several Asian countries.
The company also said it will continue to incur costs as it realigns its business to improve competitiveness, cut staff and invest in infrastructure and acquisitions.
Dell said it has already cut 8,500 workers over the past year and reaffirmed its plans to bring that number up to 8,900 during the third quarter.
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