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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Tuesday, May 13, 2008

Wal-Mart First-Quarter Profit Up 6.9%

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Associated Press

Wal-Mart Stores Inc., the world's largest retailer, said Tuesday its profit rose 6.9% in its first quarter on higher sales as lower prices helped boost its results, topping Wall Street's expectations.

The company also cited better customer service and internal cost savings for the improvement.

Wal-Mart (WMT) earned $3.02 billion, or 76 cents per share, in the three months ended April 30, up from $2.83 billion, or 68 cents per share, a year earlier.

Analysts polled by Thomson Reuters had projected earnings of 75 cents per share. The estimates typically exclude one-time items.

The company had overall revenue of $95.30 billion, up 10.3% from $86.41 billion in the prior year. Net sales excluding membership fees rose to $94.1 billion from $85.4 billion a year ago.

Analysts projected revenue of $93.47 billion for the quarter.

Without fuel, same-store sales for the first quarter were up 2.9% at Wal-Mart's domestic properties, rising 2.7% in the Wal-Mart Stores division and 3.6% at Sam's Clubs.

Wal-Mart Chief Financial Officer Tom Schoewe said for the second quarter the company expects sales in stores open at least a year to be between flat and up 2%. He said the company expects to earn between 78 cents per share and 81 cents per share.

He said the company has not yet been able to gauge how much of an impact the federal tax rebate checks will have on shoppers.