Chief executive's review The Pearson goals

Chief executive's review
The Pearson goals
Underlying sales growth
Trading margin
Adjusted earnings per share
Cash conversion
Free cash flow
Return on invested capital

Free cash flow

Free cash flow is the measure of the cash that is available from our business operations, after the payment of interest and tax, for distribution in the form of dividends or for re-investment in our business. The proceeds of disposals and the cost of acquisitions, together with any substantial integration costs associated with them, are excluded from the calculation.


Pearson's total free cash flow has been depressed in recent years by a high level of investment, particularly in the internet operations, but also in our print businesses. We believe that these investments will generate future growth, but we also need to ensure that dividends to shareholders can be paid from the cash generated by our businesses. In 2002, our focus on working capital and capital expenditure helped us to deliver a 29% improvement in free cash flow - even as we continued to invest in our businesses.

Looking ahead, we expect to deliver steady progress in cash generation, although we recognise that free cash flow in any one year may be affected by individual investment programmes. In the short term, we expect cash flow generation to be strongly positive.

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Pearson Broadband has partnered with Pearson Education to develop KnowledgeBox, a digital learning system that helps teachers create multimedia lessons in reading, maths, science and social studies. It contains over 1,500 digital resources and material from leading publishers including Longman, Puffin, Penguin and Dorling Kindersley. KnowledgeBox is being used by schools in 21 states across the US and was launched in the UK in early 2003.

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