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Politics : Ask Michael Burke
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To: Knighty Tin who wrote (66567)8/22/1999 12:08:00 PM
From: Freedom Fighter  Read Replies (1) of 132070
 
Mike,

>>One bugaboo that has made me so negative on Micron over the years is
that they have never had a nickle of free cash flow despite years of
supposedly large eps. Every penny they "earn," plus more, goes into
staying current in the business, with the result that debt and shares
outstanding continuously expand. That means that without a friendly
securities market, there is no company there.<<

I agree that the "real" free cash flow levels are the main driver of value and that many companies don't have nearly as much as you would think based on reported EPS. (At least that's true of the ones I look at.)

I would also argue that cash purchases of businesses (which are very common) are a form of capital spending. They are just buying the assets instead of building them. It might make sense for them to do so, but it's still cash going out the door that is contributing to the "future" growth of EPS and FCF and is not distributable now.

So I would question the standard definition of:

Earnings + Depreciation + Amortization of Goodwill - Capital Spending - Additions to Working Capital.

I also agree that there are numerous businesses out there right now that are only still alive because it's so easy to raise equity. As soon as the climate turns bad they are in deep doodoo (is that a word?)

Wayne
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