Free Cash Flow as Value Criterion Message Board

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Strategies & Market Trends : Free Cash Flow as Value Criterion

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To: Pancho Villa who wrote (101)	11/3/1997 7:49:00 AM
From: Reginald Middleton	Read Replies (1) of 253

Numvber 1 and 2 are on point. That is why you must run through the entire equation (not just the determination of appropriate value, but how it compares to the value in the market). As for funding stock buybacks with debt - debt is often the cheapest form of money due to federal tax laws. This being said, it is often wisest to pay for a capital intensive project (acquisition, stock buy back, etc.) with the cheapest money available. The problem is the price that the cheap money comes at - lack of payback flexibility which leads to cash flow volatility - which leads to a redcution in the overall corporate valuation.

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