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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Mike Buckley who wrote (51252)5/6/2002 7:37:20 PM
From: Pirah Naman  Read Replies (1) of 54805
 
Mike:

For a company early in its growth, negative cash flow can be an indicator that the company is plowing its cash back into the company's efforts and, thus, can be a good sign that the company is being properly managed to execute at that point in time.

Not really. It would be very abnormal for a company early in its growth curve to not be plowing money back into the business, and so negative free cash flow is an indicator of little more than "this business isn't profitable yet." On the other hand, if a company at that stage is free cash flow positive, odds are that it is either very well managed or is in a very profitable line of business. We really have to look at the expenses relative to sales (and for that type of business) to even begin to check whether management is appropriately investing its resources.

- Pirah
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