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Microcap & Penny Stocks : Kaneb(KAB)
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To: Bob Davis who wrote (58)5/4/1998 10:26:00 AM
From: Boyd Hinds   of 91
 
Thanks for the reply. A small question about defining "free cash flow":

<<Similarly, a capital expenditure reflects a management decision to add additional capacity in order to produce future growth, whereas depreciation and amortization represent the "costs" of current capacity, even though these costs are "non-cash" in nature. >>

I keep getting hung up on when capital expenditures should be subtracted from "free" cash flow. You feel that D&A represents all costs of current capacity. However, if something breaks down, hard cash must be spent to fix it. This would be a capital expenditure and would (should?) be subtracted from FCF. Additionally, a new plant addition, which is not necessary to maintain present operating capacity, is also a capital expenditure, but would not be subtracted from cash flow in your model. My question: shouldn't some types of cap exp's be subtracted from cash flow if they are necessary to maintain the present operating condition of the company?? Or is this fully accounted for in D&A?? Thanks.
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