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, October 14, 2008

Intel's Net Rises 12%; Shares Rebound

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Matt Egan

FOXBusiness

Intel (INTC) posted a better-than-expected 12% rise in third-quarter profit on record revenue Tuesday and left the door open to beating the Street in the current quarter, sending its shares jumping after hours.

The world's leading computer chip maker earned $2.01 billion, or 35 cents per share, up from $1.86 billion, or 31 cents per share, a year ago. Intel's sales increased 1% to $10.22 billion.

Analysts had been looking for earnings of 34 cents on slightly stronger revenue of $10.26 billion.

The news sent shares of Intel up more than 5% to $16.80 in after-hours trading.

“Intel delivered the best third-quarter revenue in its history,” Intel CEO Paul Otellini said in a statement. “We were solidly profitable, with operating income of over $3 billion, reflecting strong across-the-board execution and best-of-class products.”

Looking ahead, Intel sees fourth-quarter revenue in the range of $10.2 billion to $10.9 billion, leaving room for the company to exceed mean analyst estimates of $10.8 billion in revenue.

Still, Intel remained cautious about the fourth quarter.

“As we look to Q4, it is hard to know what impact the financial crisis will have on end customer demand. We are confident that our product portfolio, strong cash flow, commitment to deploying new technology and market momentum will allow us to outpace peer companies at a time when business levels are difficult to predict," said Otellini.

Intel's earnings report came on a day that saw tech stocks sell off amid worries a weak economy will lower demand for expensive products like computers. While Intel's shares recovered after hours from a 6.2% decline during regular trading, it remains to be seen if the news will lift the broader tech sector.

"While there will be estimate revisions in this earnings season, it seems they won't be disastrous. Intel's number cut (on fourth quarter revenue) was not that bad. It's definitely a shortfall. The consensus had been for $10.8 billion and now
they are guiding more to like $10.5 billion," Canaccord Adams analyst Rob Burleson told Reuters.

Helped by lower microprocessor unit costs and higher microprocessor revenue, Intel's gross margin grew in the third quarter to 58.9% from 55.4% in the second quarter. Intel said it sees gross margin at 59% plus or minus a few points for the current quarter.

Intel narrowed its capital spending forecast for the full year to $5 billion, plus or minus $200 million. Earlier, the company saw $5 billion in capital spending.

The company gave no hint of legal action with chief rival Advanced Micro Devices (AMD), the chip maker that unveiled plans to spin off its manufacturing operations last week. There has been speculation Intel could argue AMD's plans violate a cross-licensing agreement between the two companies.

While Intel's earnings increased from a year ago, its share price has not, losing more than one-third of its value over the past 52 weeks.