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Technology Stocks : Gemstar Intl (GMST)
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To: 100cfm who wrote (6316)2/29/2004 5:04:26 PM
From: Mike Buckley  Read Replies (1) of 6516
 
100,

Mike am I correct in assumming that FCF will jump prior to a meaningful increase in net earnings. I say this because I'm sure they're not done with cleaning up the balance sheet yet and expect more wrieoffs /losses from certain divisions.

I think that's very difficult to know with a reasonable degree of certainty. Over short periods of time it's not unusual that the earnings and free cash flow are totally disconnected. As an example, comparing Q3 of 2003 with the year-earlier quarter, FCF per share dramatically worsened from $.15 to -$.02. Yet EPS improved dramatically from -$2.15 to -$.06.

Also, free cash flow varies so much that trying to establish any trend of less than one year inevitably proves to be impossible.

There is always the judgement factor about determining whether a change in financial position should be considered a one-time occurence or part of the long-term stream. As an example, I'm not sure if the recently announced one-time payments resulting from licensing agreements should be excluded from the financial analysis. My tendency is to include it as part of the long-term trend but to make a note about them to keep them in context.

One last comment: For the same reason that earnings is far less meaningful than EPS, FCF is far less meaningful than FCF per share.

What write-offs are you expecting?

--Mike Buckley
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