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: jbe who wrote (181)	11/9/1997 7:02:00 PM
From: Reginald Middleton	Read Replies (1) of 253

<Reginald -- how about a FREE CASH FLOW analysis of IBM?> Pure free cash flow analysis does not provide the actual value of a company. What I have provided is a specialized discounted cash flow analysis, which by another name would be called true value. Free cash flow simply tells us how much money is in the coffers, not the rate that the money is being made or the risk involved in making that money. <: value, rather than the accounting convention known as EPS, may indeed be the long-term determinant of price. But as my bitter experience tells me, the surest determinant of a short-term drop in price is the failure of a company to meet EPS quarterly projections.> Ths is intermittently true, and is so because earnings are partially corrollary to share price, and not direct related. Even in assuming that it is true, short term price fluctations should be highly irrelevant to the average investor. I always liked the Smith Barney commercial with the stuffy old man in the antique chair saying "don't let short term thinking interfere with your long term planning."

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