In equity valuation, what does the term 'cash flow' refer to?

In equity valuation, 'cash flow' specifically refers to the amount available for distribution to equity holders. This concept encompasses not only the revenue generated by a company but also the effectiveness with which a company manages its operating expenses, taxes, interest, and other cash expenditures. Essentially, it represents the net cash generated by the company that can be returned to its shareholders in the form of dividends or reinvested in the business.

The distinction is crucial in investment analysis, as equity investors focus on the cash flows that can be realized from their investments, rather than merely looking at revenue or book income figures. Cash flow is a more reliable indicator of a company’s financial health and operational efficiency because it reflects the actual liquidity position, which is vital for assessing the potential returns to equity stakeholders.

Other choices, while related to aspects of a company's financial performance, do not capture this vital aspect of cash availability for equity holders. Revenue generated from property leasing does not account for expenses; net income after all expenses may not accurately reflect the cash available for distribution due to non-cash items; and the total amount of sales transactions completed does not directly translate into cash flow as it can include sales on credit, which do not provide immediate cash.