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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era
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To: Berney who wrote (125)4/2/1998 6:40:00 PM
From: porcupine --''''>  Read Replies (2) of 1722
 
<< porcupine put forward some free cash flow numbers recently that were dramatic. If I read them right, the S&P companies have more free cash flow in the the last 4 years than they had in the previous 15 years. It seems that this has to factored into the equation. >>

Here are those S&P free cash flow numbers, to which Wayne alerted me in the first place. I must agree with the inference drawn by Berney, if I understand it correctly, that prices are high, to a significant degree, because these companies are generating a lot more cash than at the Market's peak in the 1980's.

Note, for example, that in the 1982 to 1990 cycle, FCF was overwhelmingly negative for the total cycle. This deficit was "balanced", largely, by companies going deeper into debt.

In this cycle, the free cash flow has been positive throughout. Debt as a percentage of earnings and revenues has been greatly reduced. Non-core assets were spun-off and shares bought back. Yet inflation has fallen to close to zero. In other words, this Market is worth a lot more than the Market of 1987.

(Source: Barron's -- 2/2/98, p. 19)

Note: This is for the S&P Industrials

YR $FCF/shr.
80 -7.86
81 -9.48
82 -9.93
83 -2.12
84 -3.17
85 -3.51
86 -2.75
87 5.19
88 5.99
89 -0.44
90 -3.63
91 -2.45
92 2.43
93 6.41
94 11.71
95 13.48
96 10.35
97 12.29
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