Final answer:
Cash flow to stockholders is calculated as dividends paid minus net new equity raised, and can result in either positive or negative cash flow depending on whether the company is distributing more money to stockholders or raising more capital from them.
Step-by-step explanation:
Cash flow to stockholders equals dividends paid minus net new equity raised. When a firm issues stock, investors expect a rate of return which can come either in the form of dividends or capital gains. Dividends are direct payments made to shareholders, while capital gains refer to the increase in the value of the stock between when it is bought and when it is sold, as seen when an investor might buy a share for $45 and sell it later for $60, resulting in a $15 gain.
If a company pays out more in dividends than it raises in new equity, the cash flow to stockholders will be positive, indicating money is being returned to stockholders. Conversely, if the company raises more money from selling stock than it pays out in dividends, the cash flow to stockholders will be negative, indicating that money is being drawn in from stockholders for firm use.