July 29 (Lagos) - In between the popular P/E, ROI and ROE rations, sometimes the importance of FCF is diminished but it remains the most important metric for identifying great investments.
Apart from the income statement and the balance sheet (statement of financial position) the cash flow statement is very important document to help you determine the health of an Organization.
Cash flow is the measurement of how much cash came into your business as opposed to how much cash went out. Positive cash flow growth is probably the most important investment metric.
There are three types of cash flows:
Investing
Financing
Operation
A cash flow statement can show you whether the Company is paying dividend that it can afford to pay or stretching itself or being overly conservative.
It also shows whether a business is generating cash from its main operations or from investments etc and using that to run the business.
If a Company has no cash flow, it should strike you as a no-investment candidate.