Free Cash Flow as Value Criterion Message Board

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Strategies & Market Trends : Free Cash Flow as Value Criterion

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To: Pirah Naman who wrote (60)	10/31/1997 12:48:00 AM
From: Greg Jung	Read Replies (1) of 253

I'm still stuck on the basics on this share buyback. I can see a company wanting to just execute a model on a fixed equity base. Total IBM earnings look about constant, earnings per share increases by 3-5% per year - due to share buyback. The business has average net margin of 7%-8%. So after buying the stock the return is cut in half. ? . And one always hears "10-12% growth" when it is mentioned. I -can- see the sense in putting it into something so nobody can foolishly spend it (eg WebTV, TV shows, etc. ...GGG...) but it doesn't add up right for me. Suppose a group of 10 of us held 10 shares each representing $10,000 investment at 10% constant yield. After a year our $1m would be 1,100,000. We take 110,000 and buy out 10 shares. Nobody is richer. We now have 990,000 among nine of us. Greg

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