Dell a look at the Statement of Cash Flows (page 3)
Let us now try to determine FCF from the bottom up.
Again, all numbers are in the millions.
Net (decrease)increase in cash:
year ended:
2/02--(1,269)
2/01-- 1,101
1/00-- 2,083
Cash Flows from financing activities:
<par>
year ended 2/02 2/01 1/00
Purchases of
Common stock (3,000) (2,700) (1,061)
Issuance of
common stock 295 404 289
Employee plans
Other 3 (9) 77
------ ------- --------
Net Cash Used
in Financing
Activities (2,702) (2,305) (695)</par>
The adjustments to the bottom line cash flow from these entries would be to subtract the money from the issuance of stock for the employee plans but to do adjust nothing else. The reasoning here is that DELL has clearly said that cash to buy stock was just to prevent dilution from the exercize of stock options, so that is considered (by me) to be an operational expense because the presumption is that the employee would have insisted on being paid more cash if the options were used as an incentive. The amounts listed under "other" aren't significant enough for me to go searching out what they might be, so I'll give them the benefit of the doubt and not back them out.
So... having gone through the Financing portion our numbers look like this:
year ended:
2/02-- (1,269) - 295 = (1,564)
2/01-- 1,101 - 404 = 697
1/00-- 2,083 - 289 = 1,794
For the Cash Flows from investing activities I'll take a short cut and say we will add the amount spent on investment purchases and subtract the amounts received from "maturities and sales" and use the numbers just derived as the starting point, so we have:
years ended:
2/02-- (1,564) + 5,382 - 3,425 = 393
2/01-- 697 + 2,606 - 2,331 = 972
1/00-- 1,794 + 3,101 - 2,319 = 2,576
So the real Free Cash Flow appears to me to be:
year ended:
2/02-- 393
2/01-- 972
1/00-- 2,576
So what conclusions do I derive from this?
Well one of them is that while DELL may be a successful business, in year ended 2/02 it is paying almost 90% of the profits to insiders via stock options. (393 Real FCF divided by 3,797 CFO means that only 10.4% of the profits get to the bottom line). In year ended 2/01 it paid about 77% to insiders (Real FCF of 972 divided by CFO of 4,195 means only 23.2% made it to the bottom line). In year ended 1/00 almost 65.6% flowed to the bottom line.
This shows me that the trend of giving profits to the insiders is accelerating.
One of the conclusions that I have drawn is that DELL is a public company that is treating its profits very similarly to a private company, they're dividing them among the insiders. While this behavior may be OK for a private company, I think it highly inappropriate for a public one.
This "bottom up" method of FCF determination surely has highlighted the importance of full and accurate accounting for stock option expense.
Timba |
