This was originally published on RealMoney on May 28, 2008 at 2:59 p.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.Normally, when you analyze financial stocks, unlike industrial or retail or health care companies, cash flow is much less meaningful to the analyst, and capital and capital adequacy are the name of the game. However, not all financial stocks are regulated by the banking or insurance industry, and in fact they have business models similar to those of other businesses, and thus cash flow and free cash flow become meaningful analytical measures.
- Cash flow is defined as cash generated from operations (or CFO, as defined on the statement of cash flows) and not EBITDA or some other derivation.
- Free cash flow is defined as cash from operations less capital expenditures (or capex). Unlike most Wall Street analysts, we deduct the dividend from free cash flow calculations, thus our free cash flow calculation is cash from operations less capex and less dividends.
- Free cash flow yield is defined as free cash flow divided by revenue, and in the case of our analysis we use four-quarter trailing numbers to smooth out seasonal fluctuations.