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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Monday, June 09, 2008

Three Days in the Valley: Liz Claman Sits Down With Intel CEO

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FOXBusiness

In his first public comments since the Federal Trade Commission’s subpoena, launching a formal probe into its sales practices, Intel Corp. CEO Paul Otellini told the FOX Business Network’s Liz Claman that he does not think Intel (INTC) is violating federal antitrust laws.

“At the end of the day, antitrust is about pro-consumer and pro-competition. Intel believes in competition, competition is the heart blood of this industry,” Otellini said.

Watch: Part 2, Part 3.

The European Union has already launched its own antitrust allegations against Intel, and the company was fined last week by regulators in South Korea. Intel holds more than 80% of the worldwide market share for semiconductors. Smaller rival Advanced Micro Devices, Inc. (AMD) filed an antitrust lawsuit in 2005, but the suit won’t go to trial until 2010.

Otellini said Intel will cooperate fully with federal regulators; he pointed out that despite the allegations, Intel’s prices have come down about 6% each year, while improving functionality.

“I think the U.S. competitive law is actually the best in the world,” Otellini said. “It looks at harm to consumers in terms of taking remedies, and I think in this case…when you give consumers lower costs, you’re not harming the consumer.”

Otellini said the company looks to expand it’s business by investing in WIMAX technology, technology that will help expand broadband wireless internet connectivity.

“We helped develop the technology…we helped develop the initial property framework around it to make sure that it was very low-cost to consumers, and now we’re building the chips to go into notebooks and handheld devices and we’re building the chips to go into the base stations, the things that run the backbone of the networks.”

The chip maker is also looking to get into the mobile sphere.

“I think it’s not too far-fetched to think that over a 10-year period, every phone will connect to the Internet,” Otellini told FOX Business.