Finding Enhanced Shareholder Value Using "Free Cash Flow"

The Penny Sleuth Features: Penny Stocks, Options and High-Growth Opportunities! Finding Enhanced Shareholder Value Using “Free Cash Flow” By Jessica Comitto February 25, 2011 Dear Penny Sleuther, Finding value in investments is one of the most difficult tasks investors face. There are so many ways to measure a company’s value but one of the most popular ways is by using free cash flow. Free cash flow is the investor’s best way to find companies that have the cash needed for growth within the company and opportunities to enhance shareholder value. So lets dive right in… Last week, I covered how you can use net profit margin to gauge a company’s profitability. Our small-cap stock screen is quickly becoming a very manageable watch list. With five simple additions we have already narrowed down the overwhelming world of stocks to 40 small-cap companies. Today, we will be talking about free cash flow, or FCF. Shock Video: 123 Winners in 127 Moves — Get the Next Profit Alert on Wednesday This new presentation reveals amazing market strategy that recently cranked out gains with 97% success. This is easy. It’s fast. You don’t need special skills or connections. Check it out — here. You can find free cash flow by taking the operating cash flow and subtracting capital expenditures. Operating cash flow can be found as a line item on a company’s statement of cash flows. Capital expenditures are the expenses a company incurs to acquire or update physical assets (such as real-estate). FCF shows real money that the company generates right now without being skewed by non-cash accounting numbers. This metric can be useful to identify companies that generate higher cash balances in their bank accounts. Some investors believe the FCF gives a clearer view of the company’s ability to generate cash. However, there is no easy standard for determining FCF. Even the savviest investors sometimes disagree on the use of this metric. As with many of the metrics we have been talking about, FCF is not cut and dry… 6 Penny Stocks to Own Right Now… Penny Stock Fortunes is giving away SIX penny stock recommendations to all new subscribers! But you must hurry because these plays could explode at any time. Click here to watch the presentation now. A lower FCF could indicate that the company is unable to cover its costs and sustain growth in the future. A company without enough FCF may not have enough liquidity to stay in business. Negative free cash flow is not always bad in itself, though. It could be a sign that the company is making large investments... if these are smart investments that yield high returns, they will pay off in the future. Companies that show a higher FCF show value. With more spending money at their fingertips, companies with higher FCF have the cash to develop new products, make acquisitions, pay dividends out to their shareholders, and reduce their debt. Uncovered: How to Turn $500 into $15.1 Million Your “30-Day Retirement Plan” could have turned $500 into $15.1 million or more — in less than 30 days! It’s happened before. Could it start again next week? Start your own “30-Day Retirement” — click here to learn how. In the small-cap universe, positive FCF is a good indication that share price and earnings will rise. That is why we are going to set the FCF to greater than zero. Here is a look at our Sleuth screen so far: We now have about 30 small-cap companies that have the cash flow to produce value to their shareholders. Next week it will be time to start looking at the individual companies that have popped up on our Sleuth screen. Sincerely, Jessica Comitto Associate Editor, Penny Sleuth P.S.: If you have any other stock screen metrics you would like me to cover, please feel free to email them to me at pennysleuth@agorafinancial.com. Why Waste Time and Money on Blue Chips? All the great investors know the real profits are in these hidden stocks that no one talks about. Hot biotech plays are just the start. Take a look at what the CXS Money Multiplier can do for your investments. Click here for a FREE presentation... Finding Enhanced Shareholder Value Using “Free Cash Flow” is featured at Penny Sleuth. The Secret $200 Retirement Blueprint Investing in Penny Stocks What Is Technical Trading Follow the Penny Sleuth on Twitter, here. Become a Facebook Fan of The Penny Sleuth, here. The Penny Sleuth, a free e-letter, offers independent news and commentary on small cap stocks, options and high growth opportunities. 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