Cash Flow - earnings per share include many adjustments to reflect the standard accounting wisdom, beyond the cash taken in and spent by a company (depreciation, expensing options, expensing long term investments over the expected life, writing off inventory...). Cash flow is a measure that tries to more closely measure the increase (or decrease) for a company over a period of time.
An advantage of looking at cash flow is it is more difficult to distort than earnings per share (though it is still very possible). A disadvantage is that standard accounting practices exist for a reason and often give a better picture than a simple view provided by the cash flow. Therefore cash flow is normally useful in conjunction with the earnings statement - not instead of.
Selling stock bring cash into the company, but it is not a sign of cash generated by the company. This is one example showing how a simple look at cash flow can be misleading. For that reason the cash flow statement views such financing cash flows seperately.
Operating Cash Flow attempts to eliminate such non-operations impacts (like selleing or buying stock) and give a cash flow figure for the operation of the business. Free Cash Flow is equal to "operating cash flow" less "net capital expenditures."
Like many accounting terms, cash flow is more complex in execution than it seems.
Related Terms: