http://www.gurufocus.com/news.php?id=89879
Summary
The article offers opinions regarding high amounts of free cash flow. The company, Earthlink Inc., is a Internet service provider, providing nationwide Internet access and related value-added services to individual and business customers. The writter did a comparision between operating net income and cash from operating activites. We can get a conclusion--the company has ballooned with very little capital reinvestment into the business, which means the business wasn't expanding.
Connection
Cash flow statment is very useful in terms of investments, cash inflow/outflow, and other things. It cannot replace and be replace by income statment. It is possible that a company suffers a net loss but has a cash inflow from operating activities. Another important difference between net income and cash from operating is amorization. I personally think that amorization has little effect on a company's financial position unless long-term assets need to be updated or renovation. The company in the article, Earthlink Inc, has more cash inflow than its net income because of deprecitions.
Inflection
If a business uses cash base accounting system, a income statment would not be needed. Since we can't predict likely results from a cash base company, I think reccured base is more acceptable. Cash is always more important than any other assets in a company because without cash, a company couldn't not work. We need cash to pay taxes, pay employees, buy inventory, and pay other bills. A successful company should have many qualities, and having enough cash is one of them.
Summary
The article offers opinions regarding high amounts of free cash flow. The company, Earthlink Inc., is a Internet service provider, providing nationwide Internet access and related value-added services to individual and business customers. The writter did a comparision between operating net income and cash from operating activites. We can get a conclusion--the company has ballooned with very little capital reinvestment into the business, which means the business wasn't expanding.
Connection
Cash flow statment is very useful in terms of investments, cash inflow/outflow, and other things. It cannot replace and be replace by income statment. It is possible that a company suffers a net loss but has a cash inflow from operating activities. Another important difference between net income and cash from operating is amorization. I personally think that amorization has little effect on a company's financial position unless long-term assets need to be updated or renovation. The company in the article, Earthlink Inc, has more cash inflow than its net income because of deprecitions.
Inflection
If a business uses cash base accounting system, a income statment would not be needed. Since we can't predict likely results from a cash base company, I think reccured base is more acceptable. Cash is always more important than any other assets in a company because without cash, a company couldn't not work. We need cash to pay taxes, pay employees, buy inventory, and pay other bills. A successful company should have many qualities, and having enough cash is one of them.
