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Technology Stocks : Citrix Systems (CTXS)
CTXS 103.900.0%Nov 2 5:00 PM EST
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To: Chuzzlewit who wrote (7348)12/6/1999 12:21:00 AM
From: Saturn V  Read Replies (1) of 9068
 
Ref- <"Free cash flow is synonymous with disposable cash flow. It is the amount of cash a company can periodically part with without adversely affecting operations. In general, free cash flow is a good surrogate for dividends, which is the basis for valuation">

I buy your the general spirit of the above statement, but I strongly disagree with the rest. I agree that capital expenditure required to maintain the existing operations be excluded from free cash flow. [ Because this capital expense is needed to hang on the existing market position or is needed for survival in the existing line of business.]

But I would include in the free cash flow , capital expenditures or acquisitions for new lines of businesses, or investments in new companies. These expenditures are indeed DISCRETIONARY, and are undertaken so that you do not build up excess cash. The alternative for a company like Intel is to return the money to stock holders in the form of dividends, and then have the shareholder reinvest it in a new company. Unfortunately this is subject to double taxation for the shareholder.

So I would prefer a company like Intel to reinvest the profit in a new business, and hopefully they will do an equivalent or better job than my reinvesting it. And the tax on the dividend is avoided.
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