Investment site The Motley Fool has run an interesting article discussing measuring companies’ strength by looking at cash flow statements rather than just income statements. The article focuses on Redbox parent Coinstar, and whether the company’s cash flow breakdown should be a cause for concern for investors.
Says the Fool:
“In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.”
Which brings us to the Fool‘s comments on Coinstar. Accompanying the article is a fascinating chart detailing Coinstar’s cash flow components, including flow from “questionable sources” such as changes in taxes payable, tax benefits from stock options and asset sales.
The Fool recommends that investors should become cautious when cash flow from apocryphal sources exceeds 10% of a company’s operating cash flow. While Coinstar has heavy capital expenditures that give it a smaller amount of free cash flow than some of its peers, the company has just 2.4% of its operating cash flow coming from “questionable sources” and is pronounced as “clean” by the Fool.
(via The Motley Fool)