Reginald,
"I asked the question to prove a point. You cannot ascertain a fair price of a company
by simply looking at free cash flow. You have to project cash flows out to a future date
and discount them back to the present using an appropriate discount rate (usually the
WACC - weighted average cost of capital). Earlier you were attempting to
differentiate between FCF and "my" methods, when in actuality pure FCF tells you
nothing outside of how much money is in the company's checking accounts."
I thought you were against this????
"
FCF does not tell the whole story. FCF is part of the picture, but like I
was telling Andrew, companies that efficiently invest all of thier FCF are worth more,
while it appears that many on this thread think that the most FCF you have, the better.
My methods do not subscribe to that mindset.
FCF methods do not project FCF's and discount them, DCF methods do. there is a
difference, eventhough many would consider it a matter of semantics."
Semantics indeed. I would propose DFCF instead of DCF which is misleading (sounds like just "cash flow").
And I would indeed say, for a given future rate of growth, the more FCF you have, the better. Or if you want to throw WACC and risk into the mix, why not "All else being equal, the more FCF the better".
Andrew |
