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Strategies & Market Trends : Free Cash Flow as Value Criterion
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To: jbe who wrote (49)10/30/1997 12:34:00 PM
From: Pirah Naman   of 253
 
jbe:

> I'm still confused about your method of calculating free cash flow > using Value Line numbers.

Sorry - I shall be more explicit here.

> 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.>

That last is not my method. That last was my understanding of how a strict calculation is done. I have not done this except a couple times to test and see how much of a change is made.

In response #30 I give the numbers and the results for MLHR. In my spreadsheet I take the simple approach of cash flow - cap expenditures. You may be right about the SEC rules, I don't know, but even if you are somehow wrong I won't bother to "sophisticate" my approach.

As Andrew pointed out, changes in working capital are no more impossible to incorporate than any other financial number. I don't bother simply because I consider all these projections to be "fuzzy."
As I've said a couple times in this thread, any precision is illusory; you concurred when you said that it was a chimera.

I use VL's numbers because they are the only outfit that details their projections, actually bothers to make projections in this form, and because they seem to be reasonably accurate at least in the short range. As they have spent time with the companies, their projections are bound to be better than any of my imaginings.

PIrah
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