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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.
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Monday, September 22, 2008
SEC Adds Firms to Short-Sale Ban, Tweaks Rules
FOXBusiness
The Securities and Exchange Commission revised its order banning short sales on certain financial companies through Oct. 2, adding some extra stocks to the list and allowing the securities exchanges themselves to add companies that meet certain criteria, in addition to making some technical changes.
The SEC published a list of 30 companies it was adding to the list, which had originally included 799 firms. As soon as the list was published, some companies left off the list, such as General Electric (GE) and CIT Group (CIT), reportedly started lobbying to be included.
Both those firms got their wish, along with others such as American Express (AXP), Discover Financial Services (DFS) and General Motors (GM).
In addition, the SEC gave securities exchanges the authority to add stocks to the short-sale ban list themselves, as long as the companies fit in certain categories, including banks, insurance companies and registered brokers or dealers.
In a press release, the Commission stated, “Difficulties with the classification criteria led to the omission of financial institutions falling within these categories,” and it asked each exchange to publish a list of securities that it would include in the ban.
The SEC also made some technical changes to the short-sale ban, tweaking rules related to market makers and options contracts, among other things.
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