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Strategies & Market Trends : Value Investing

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To: tyc:> who wrote (11820)	1/12/2001 11:11:16 AM
From: Bob Rudd	Read Replies (1) of 78480

wmchen: >I wonder if it is necessary to differentiate between cash flow and FREE cash flow.< Assuming by 'cash flow' you refer to CFO, I think it is necessary. For example take 2 firms: The first must reinvest a substantial portion of it's operating cash flow to MAINTAIN existing cash flows - whether by spending on R&D, replacing obsolete equipment, or other investment necessary to keep cash flows coming at current levels. The second, because the earnings power of it's capital base either doesn't deteriorate or deteriorates far more slowly, is free to invest nearly all it's operating cash flow in new projects offering returns greater than the cost of capital. If these firms had identical CFO, which would be more valuable?

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