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Strategies & Market Trends : Value Investing

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To: TimbaBear who wrote (11818)	1/11/2001 6:14:01 PM
From: tyc:>	Read Replies (2) of 78476

Free Cash Flow evaluation >>I also have a problem with adding back all Depreciation and Amortization due to opinion I have that some of it really is a loss of useful value and therefore should not be added back. I too am groping here but.... If you are evaluating an enterprise on the basis of FREE CASH FLOW then perhaps you should not be concerned about such concepts as "loss of useful value". ALL past capital expenditures are extraneous to your evaluation.... they simply represent moneys spent in the past. What needs to be evaluated is present and future cash flows only. I wonder if it is necessary to differentiate between cash flow and FREE cash flow. I wonder if one could treat ALL current and future capital expenditures as "self supporting". If "maintenance" capital expenditures do not enhance future cash flows, they will at least extend the term of your evaluation model thus enhancing its PV. The problem would thus become one of providing a rational finite life to the enterprise i.e. limiting the number of payments in your DCF evaluation.

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