Time saver: For those of you who follow the Fool's NPI thread closely, all of the information in this post was already posted there.
ggamer,
Can you show us your results for the companies that you reviewed.
The purpose of my calculation of free cash flow per share is to arrive at free cash flow produced by core operations. The formula is as follows: Operating cash flow minus tax benefit related to employee-exercised stock options minus capital expenditures divided by diluted shares outstanding.
QCOM: In each of the last four fiscal years (ending in September) Qualcomm improved FCF per share as follows:
-$0.44, $0.54, $0.76, $1.01.
SEBL: Siebel generated negative free cash flow during its tornado in 1999. In the two subsequent years, FCF per share was $0.12 and $0.55. In the first nine months of the current year, it generated $0.52 and will likely have another record year.
EMC: The company improved FCF per share consistently from 1997 to 2000. In 2001 it dipped 41%. In the first nine months of this year, FCF per share is only 5 cents shy of its best 12-month production. Considering EMC's pre-announcement that expectations were exceeded in Q4, I expect 2002 will be a record year for the company.
NTAP: In each of the last four fiscal years (ending in April), the company's FCF per share was $.04, $0.22, $0.37, and $0.31. (That most recent year excludes the $250 million purchase of real estate. Including that transaction, FCF per share becomes -$0.40.) For the first two quarters of the current fiscal year, FCF per share exceeds the year-earlier period by about 40%. If that trend continues throughout the rest of the year, NTAP will produce record FCF per share by a large margin.
BEAS: FCF per share in the previous four fiscal years (ending in January) was $.05, $0.12, $0.42, and $.38. BEAS must have a very strong Q4 ending this month (I don't know the expectations) to meet or beat FCF production in the previous two years.
To put all of the above into greater perspective, CAPEX is a clearly important component of free cash flow. As I look at the financial data about the companies I reported on above, I can't find strong correlation between changes in revenue and changes in CAPEX. If the correlation doesn't exist in the past, it's certainly not highly predictable in the future.
Additionally, one person on the Fool thread observed that these past two years's FCF numbers most likely don't reflect what CAPEX would be in normal years. Many companies are running below maintenance CAPEX levels.
That re-emphasizes the importance of looking at financial issues on a case-by-case basis. Examples of CAPEX as percentage of revenue (same companies as above):
QCOM: From FY96 - FY99 Qualcomm's revenue increased dramatically. From FY99 - FY01 revenue decreased substantially because Qualcomm sold off its infrastructure and handset businesses. During those earlier years when the company's business model was more capital-intensive, CAPEX was much higher than it is now. During the last four years (first three saw declining revenue and the fourth saw increasing revenue), CAPEX as a percentage of revenue has held constant and, thus, might be more predictable than in the case of other companies. Or maybe not.
SEBL: Contrasting with Qualcomm, Siebel's CAPEX has varied widely over the last six years. CAPEX as a percentage of revenue in the current year (so far) is running lower than any of the previous six years. It's hard to imagine that such a low rate of spending is sustainable.
EMC: In the previous six years, CAPEX as a percentage of revenue consistently grew with the one minor exception that it dipped slightly in FY99. However, CAPEX relative to revenue has been reduced so much during the current year (so far) that it is nearly 40% less than last year and has returned to the levels prior to 2000. Based on the company's past, this year's level is not sustainable.
NTAP: Over the previous six years, NTAP's CAPEX as a percentage of revenue has been somewhat more consistent than the others. Though it dropped a lot last fiscal year, CAPEX in FY03 is running at the same pace as in FY00 and FY01. This company's CAPEX is probably a bit more predictable than the other companies mentioned. Or maybe not. :)
BEAS: During the previous four fiscal years, this company's CAPEX as a percentage of revenue has been amazingly consistent, moreso than in the case of any of the other companies. The current year is no exception. Of the companies mentioned, possibly this company's CAPEX is most predictable.
--Mike Buckley |
