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Fire Your Stock Analyst!: Analyzing Stocks on Your Own by Harry Domash

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Statement of Cash Flows

Cash flow is the amount of actual cash that flowed in or out of a firm’s bank accounts during the reporting period. Cash flow is a better gauge of a company’s profitability than reported earnings because earnings reflect a myriad of arbitrary accounting decisions while cash flow reports the real change in bank balances.

Operating cash flow reports the cash generated or used by the company’s basic operations. Free cash is operating cash flow minus capital expenditures. Companies can, and frequently do, report positive earnings when, in fact, they’ve lost money on a real cash basis.

Cash Flow Red Flags

Some companies, though cash flow positive on an annual basis, habitually burn cash during certain quarters. Therefore, ...

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