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Technology Stocks : Unitrode - UTR
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To: Dave Hanson who wrote (40)10/23/1997 8:20:00 AM
From: Andrew  Read Replies (2) of 50
 
Dave,

I work under the assumption that free cash flow represents the cash that a private owner would be able to put in his own pocket each year without stunting the growth of the current business. Earnings are only part of the picture - they ignore the very significant, and very necessary, capital expenditures that most companies must make (to varying degrees) in order to maintain the current business. Like Intel building it's fabs.

Since we shareholders generally don't receive this free cash flow as a private owner might choose to, the company often chooses to reward us in other ways: use it to buy back shares, pay dividends, make aquistions, etc - all of which increase the value of our shares (in theory at least!).

The point is, earnings alone don't provide enough information about the "real flow of cash". Depreciation and Amortization is added to earnings to get "Cash Flow", then Capital Expenditures are subtracted to get "Free Cash Flow".

I also like this company a lot...but I'm pretty cheap.<g>

Andrew
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