Pirah, FYI: Here's a message I sent to Market Guide:
Dear Sirs:
I use the Market Guide Comparison Ratios religiously. I pay particular attention to the price/free cash flow ratios. And some of the stocks I have bought have lower price/free cash flow ratios than price/cash flow ratios, according to your data. A couple of cases in point: Compaq (p/cf: 26.04; p/fcf: 12.65); Herman Miller (p/cf: 17.16; p/fcf: 12.67); Chicago Rivet & Machine (p/cf: 9.53; p/fcf: 8.80).
However, your data have been challenged by a number of people who participate in a Silicon Investor forum I launched, "Free Cash Flow as a Valuation Criterion." They insist that it is NOT POSSIBLE for a company to have price/free cash flow ratio that is lower than its price/cash flow ratio.
And looking at the method you use to calculate free cash flow -- I quote: "it is calculated from the Statement of Cash Flows as cash from operations minus capital expenditures and dividends paid" -- they would appear to be right. If a company makes NO capital expenditures and pays NO dividends, its free cash flow will be equal to its cash flow, and the p/cf and p/fcf ratios will be identical. But if it makes ANY capital expenditures and pays ANY dividends, it will have less free cash flow than cash flow, and so its price/FCF ratio will be higher than its p/CF ratio. The only way it can be LOWER is if you ADD something to the cash flow figure (e.g., investment income from securities). But you apparently don't do that.
Can you please explain in more detail how you calculate your cash flow/free cash flow ratios, and why, according to your calculations, some companies can indeed have higher price/free cash flow ratios than price/cash flow ratios? I do hope you can respond, for your sake as well as mine. It's bad advertising for you, after all, when investors publicly challenge your numbers and call your competence into question.
END OF MESSAGE
Nasty, perhaps, but designed to elicit a reply. I hope to get it, and hope it will be a satisfactory one -- because Market Guide's Ratio Comparisons ARE unique.
I know the www.wsrn.com (Wall Street Research Network)site well; I used to use it often. But as far as ratio comparisons go, it can't compare with Market Guide (presuming that the latter's data are correct!). The Quicksearch Fundamentals & Ratios & Earnings Estimates company profiles, available on WSRN, compare individual companies to their respective industries on only eight paramaters (price, net income, p/e ratio, ROE, debt/equity, revenues, eps, price/book, ROA, and profit margin). The "Industry Comparison" spreadsheets on WSRN give raw data on only nine parameters (price, p/e, yield, ROE, debt/equity, eps % change last quarter, earnings growth rate, market value).
Market Guide, on the other hand, will compare the company of your choice not just to its industry, but also to its sector and the S&P average, on FORTY NINE parameters: p/e ratio (TTM); p/e high (last 5 years); p/e low (last five years); beta; price/sales ratio (TTM); price/book ratio (MRQ); price/tangible book (MRQ); price/cash flow (TTM); price/free cash flow (TTM); % owned institutions; dividend yield; dividend yield 5-year average; payout ratio (TTM); sales (MRQ) vs. Qtr. l year ago; sales (TTM) vs. TTM l year ago; sales 5-year growth rate; EPS (MRQ) vs.qtr. l year ago; EPS (TTM) vs. TTM 1 year ago; EPS 5-year growth rate; capital spending, 5-yr. growth rate; quick ratio (MRQ); current ratio (MRQ); long-term debt to equity (MRQ); total debt to equity (MRQ); interest coverage (TTM); gross margin (TTM); gross margin 5 yr. average; EBITID (not EBITDA) margin (TTM); EBITID margin 5-yr. average; operating margin (TTM); operating margin, 5-yr. average; pre-tax margin (TTM); pre-tax margin 5-yr. average; net profit margin (TTM); net profit margin 5-yr average; effective tax rate (TTM); effective tax rate 5-yr. average; return on assets (TTM); return on assets 5-yr. average; return on investment (TTM); return on investment 5-yr. average; return on equity (TTM); return on equity 5-year average; revenue/employee (TTM); net income/employee (TTM); receivable turnover (TTM); inventory turnover (TTM); asset turnover (TTM).
Whew! You can see why I would like Market Guide to come up with a good answer -- it would take me a lifetime to assemble all this data for myself.
The Telescan Corporate Snapshots also provide comparative data on almost all the above parameters, plus a multitude of different ones; but companies are ranked only according to their standing within the "entire universe" of stocks in the Telescan data base. Very useful, nevertheless, for locating stocks for further research. |
