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Strategies & Market Trends : Free Cash Flow as Value Criterion
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To: Pirah Naman who wrote (48)10/29/1997 8:03:00 PM
From: jbe  Read Replies (2) of 253
 
Pirah -- I'm still confused about your method of calculating free cash flow using Value Line numbers.

In my previous post, I asked you whether you simply subtract capital spending per share from the cashflow per share. Your response was:

<That would be the simple way to get the "cash earnings" described by GADR.>

Maybe. But that is also the simple, and the most commonly used, method of getting "free cash flow." Your method is very different:

<To get the actual free cash flow, all you'd have to do is add in the change in working capital from the previous year.>

This may be a great method, but it's by no means the conventional one. Does that mean that you DO NOT deduct capital expenditures from operating cash flow? And what exactly do you mean by "adding in the change in working capital"? And since the working capital number is not a "per share" number, and since the number of shares out fluctuates from year to year, doesn't this present a problem (if only a minor one)?

jbe
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