Motley Fool Money Guide to Financial Statements (2 of 2)
Apr 9, 2022
Dive into the world of financial statements as the discussion zeroes in on cash flow and its significance for investors. Learn how net income transforms into free cash flow and the critical choices companies face with that cash. Key financial ratios and margins are dissected, revealing insights into company health. Understanding these connections can guide savvy investment decisions. Plus, discover practical adjustments that can illuminate a company's growth potential!
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Intrinsic Value and Free Cash Flow
- Intrinsic value is the present value of all future free cash flows.
- Free cash flow drives business growth, intrinsic value growth, and compounding.
Net Income and Cash Flow Statement
- Net income, the bottom line of the income statement, is the top line of the cash flow statement.
- The cash flow statement converts net income into cash flow from operations through adjustments.
Adjustments to Net Income
- Several adjustments convert net income into cash flow from operations.
- These include adding back non-cash charges like depreciation, amortization, and stock-based compensation.