Two weeks ago I decided to sell my shares of E*Trade (ETFC) after concluding it did not fit my investment criteria. It was one of my successful picks for 2010 and I made money having sold puts establishing a base price of $13.50. It closed Friday February 25 at $15.89.

I might not have chosen to post about this except for news that Ken Griffin's hedge fund Citadel Investment Group plans to sell much of its stake in E*Trade Financial. The largest shareholder selling out is news. Citadel will still hold valuable warrants, giving it the option of taking a very large position again, but for now there seems to be a change of heart for them as well.

Investors will want to read a brief article by Marie Leone on this question in CFO Magazine. There are 4 main ways a company can choose to utilize its cash flow. Of course, a company can choose to reduce its debt load in order to preserve or raise its credit rating. Bondholders would certainly agree with this approach, though shareholders would more likely tolerate a higher leverage of net debt to EBITDA (Earnings before interest, taxes, depreciation and amortization). A company can also use its free cash flow to invest in opportunities that are an acceptable combination of growth potential vs. risk. A company can also choose to put some money back in shareholders' pockets by paying out a dividend or by repurchasing its stock.

There is not one single approach that is optimal in all circumstances. What matters most is that a company in fact has a transparent cash management policy in place that factors in the direct relationship between a company's target debt level and its share repurchases. It also matters that investors can find out what the company policy is.