Mindmeld:
I have checked John Shannon's calculation numbers for free cash flow against Cisco's last two 10Qs and in my opinion his 946 million number is precisely correct. I also firmly believe John’s 946 million free cash flow number is a much more useful number than your 1.941 billion adjusted cash flow from operations number for valuing the company.
Both are valid and we both actually included changes in net working capital as is appropriate.
On the contrary, I believe John is in complete agreement with me (or rather I am in complete agreement with John) that the net changes in the working capital account do not belong in the free cash flow calculation.
I can get a good proxy for free cash flows by taking net income and adding back depreciation, amortization, and investments in PP&E.
Yes, you John and I are complete agreement on your statement above. But then you unexplicably go on to say: Brealy & Myers directly contradict your assertion that net working capital should not be included in free cash flow
Sorry, those two assertions above, both of which you attributed to your Brealy & Meyers readings, are directly contradictory.
What John did was add those changes back to net income, whereas I just left them in operating cash flows, which is to say we did the exact same thing.
If you did the same thing, why did you get two results 100% apart?
Let me clarify. If sales continue to go up, but A/R remains the same, then wouldn't you say that the business is getting more efficient at collecting?
Yes, but this still does not make this change in AR, or lack of change in this case, belong in the free cash flow calculation.
John is to be commended for putting up with such endearing terms and expressions as "hogwash", "ridiculous", "distortion" and "conclusions not based on facts" in such good humuor in light of the outstanding accuracy of his assertions during this debate. He must be mellowing.<ggg>
Best regards,
Huey |
