>>For example, and simplistically, a company with 100mm in revenues, 50mm of cost of goods sold and 30mm in expense has 20mm in cash flow<<
This is completely wrong. Cash flow has nothing to do with depreciation, amortization, or anything of the such. First of all there are 3 types of cash flows: operating, investing, and financing.
Cash flow from investments is usually negative (and should be if your company is expanding) and includes cash paid during the quarter for investment activities, such as buying a building or selling an unwanted asset.
Cash flow from financing activies is the cash paid and/or received during the period for things such as buying back stock, selling stock, paying off debt or getting into debt, and paying dividends.
Cash flow from operations is the most important of the three. This is the best measure of liquidity for the company. CFO IS SIMPLY THE NET CASH BROUGHT IN OR PAID OUT FOR OPERATING ACTIVITIES DURING THE PERIOD. The example given above is dead wrong and is an approximation at best. Operating activities include cash from customers, cash paid to suppliers, cash paid for any and all expenses (wages, income tax, pension, etc.) and the like.
The reason cash flow isn't all that important for a company like PRST is (a) they have a debt to equity ratio of only 20%, so debt isn't much of a problem, (b) they have more accounts recievable than current liabilities, (c) most of the accounts recievable are from Heidelberg I assume, who probably won't default on payments, and (d) PRST is still a small company. Soon enough, people will see cash flow increase dramatically.
The argument that PRST is a $20 stock is so silly and near sighted that I won't even get into it.
acey |
