William - I'm not an accountant - but I see the problem in comparing free cash flow of a bricks & mortar company to that of an internet company as the following: In order for a bricks & mortar company (such as Barnes & Noble) to generate more revenue and income, it must spend money on (among other things) marketing and building new stores - both of these expenses have a negative impact on free cash flow. An Internet company, such as Amazon, increases revenue and profit through marketing, building infrastructure and acquiring other internet companies - marketing and infrastructure building reduces free cash flow, whereas acquisitions do not (the non-stock part of which are recorded as non-recurring expenses).
Internet companies have an edge in being able to use stock and non-recurring expenses to expand. Of course bricks & mortar companies could expand in the same manner - but for some reason, in the bricks & mortar world, expansion into new retail areas is often seen as a risk of brand dilution, whereas on the internet it is not (obviously this point could be discussed at length). If internet stock prices decline, and the SEC starts imposing greater restrictions on what can go into the non-recurring expense line, "acquisition advantage" that internet companies enjoy may disappear.
Again, I'm not an accountant - so I'm not writing as an expert here. But if there is a flaw in my reasoning, please let me know.
Thanks,
-Eric |
