SharpFokus Short Cashflow Course – Lesson 4
📌 Over Time, Cashflow & Equity from Shareholders Will Likely Match
⸻
🔹 The Long-Term Relationship Between Cashflow & Equity
A company’s cash movements over time determine how much equity it needs to raise or how much it can return to shareholders.
💡 Key Insight: Over the long run, total cash generated by a company will likely equal total payments made to (or received from) shareholders.
⸻
🔎 What Happens When Cashflow is Positive or Negative?
📌 Scenario 1: Positive Free Cashflow (Strong Business Performance)
✔ The company generates cash from operations.
✔ It does not need to raise debt or equity to survive.
✔ Eventually, all cash generated will be returned to shareholders—through dividends or buybacks.
📌 Scenario 2: Negative Free Cashflow (Weak or Growing Business)
❌ The company spends more cash than it makes.
❌ It must borrow money (debt) or issue new shares (equity) to stay afloat.
❌ Shareholders provide the missing cash, increasing company liabilities.
⸻
📊 Why This Matters
1️⃣ If a company has strong free cashflow over time, it will eventually distribute that cash to shareholders.
2️⃣ If a company has negative free cashflow for too long, it will have to replace the shortfall with new equity.
3️⃣ This means that long-term cash movements can tell you what a company will do next—whether it will raise capital or return it.
🚨 Many people focus only on current financials, but historical cashflow shows where a company is really headed.
⸻
📌 Summary
🔹 Positive cashflow means companies can return money to shareholders.
🔹 Negative cashflow means companies eventually need to raise equity.
🔹 Over time, a company’s cash movements determine how much it pays or receives from shareholders.
📌 Next Lesson:
In Lesson 5, we introduce CFROA (Cash Flow Return on Assets)—a key metric for measuring business effectiveness.
👉 Go to Lesson 5
📌 Over Time, Cashflow & Equity from Shareholders Will Likely Match
⸻
🔹 The Long-Term Relationship Between Cashflow & Equity
A company’s cash movements over time determine how much equity it needs to raise or how much it can return to shareholders.
💡 Key Insight: Over the long run, total cash generated by a company will likely equal total payments made to (or received from) shareholders.
⸻
🔎 What Happens When Cashflow is Positive or Negative?
📌 Scenario 1: Positive Free Cashflow (Strong Business Performance)
✔ The company generates cash from operations.
✔ It does not need to raise debt or equity to survive.
✔ Eventually, all cash generated will be returned to shareholders—through dividends or buybacks.
📌 Scenario 2: Negative Free Cashflow (Weak or Growing Business)
❌ The company spends more cash than it makes.
❌ It must borrow money (debt) or issue new shares (equity) to stay afloat.
❌ Shareholders provide the missing cash, increasing company liabilities.
⸻
📊 Why This Matters
1️⃣ If a company has strong free cashflow over time, it will eventually distribute that cash to shareholders.
2️⃣ If a company has negative free cashflow for too long, it will have to replace the shortfall with new equity.
3️⃣ This means that long-term cash movements can tell you what a company will do next—whether it will raise capital or return it.
🚨 Many people focus only on current financials, but historical cashflow shows where a company is really headed.
⸻
📌 Summary
🔹 Positive cashflow means companies can return money to shareholders.
🔹 Negative cashflow means companies eventually need to raise equity.
🔹 Over time, a company’s cash movements determine how much it pays or receives from shareholders.
📌 Next Lesson:
In Lesson 5, we introduce CFROA (Cash Flow Return on Assets)—a key metric for measuring business effectiveness.
👉 Go to Lesson 5