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Strategies & Market Trends : Value Investing
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To: Alejandro who wrote (4492)7/24/1998 6:18:00 PM
From: tipol  Read Replies (1) of 78686
 
Your definition of Free Cash Flow is almost right except that you shouldn't subtract dividends and you should only subtract maintenance level capital expenditures -- not those put into projects that aim to expand the business. Capital spending is the 10-K or annual report. To get maintenance level capital expenditures you may have to call the company as many don't break out capital spending in their reports. The idea is that you want to calculate what money you would be able to take out of a business without hurting it in the future (thus subtracting only maintenance level capital expenditures). This is done as if you owned the whole business and is sometimes called owner earnings. You don't subtract dividends because those are actually paid to you as an owner. Free cash flow is in one sense the economic return from an investment and is often mentioned by Buffett who estimates them in the future and discounts back to the present which is much tougher to do than get the present figure. He actually claims to value businesses this way but Munger says he's never seen Warren actaully do one of these. <G> See the free cash flow thread. www3.techstocks.com The first 30 or so posts are long but very good. Also some of more recent posts are interesting. There's a lot more to be said about this topic but the thread mentioned above does a good job. Corrections or amplifications anyone?
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