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Strategies & Market Trends : Free Cash Flow as Value Criterion
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To: Pirah Naman who wrote (30)10/28/1997 4:25:00 PM
From: jbe  Read Replies (1) of 253
 
"Weekly" Value Line?? I clearly have been missing out on a lot! Can you get the weekly in the library, too? (Thanks to the past week's losses, I am getting chinchy about subscribing to yet one more service.)

Now, about MLHR's low profit margins. I had not thought of looking at FCF in the context of its profit margins (which I admit are low, even compared to its industry). Don't the operating and net profit margins reflect earnings? And isn't the argument for putting more emphasis on free cash flow than on earnings based on the fact (or the perception) that earnings figures can be manipulated? In any event, please indicate how you view the inter-relationship of free cash flow and profit margins. (I know that a low price-to-sales ratio-- considered good -- is often no more than a function of low margins -- considered bad. Would you say the same is true of a low price to free cashflow ratio? Or, are we back again in yet another vicious circle?)

Put another way: you have already at least inadvertently answered one of my earlier questions, which was: is MLHR, with a somewhat high price/earnings ratio, but with a very low price/FCF ratio, expensive or cheap? You say expensive -- meaning, perhaps (?), that you are paying more attention to the p/e ratio.

That web site you gave the address for in an earlier post (GADR) is great! I notice they rely on yet another concept -- CASH EARNINGS -- which they carefully distinguish from free cash flow (as well as from pure "earnings"). I haven't really studied/figured it out yet. But am I right in assuming that your method is based on that "cash earnings" concept (which would explain our divergence on MLHR)?

Thanks for your patience!

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