uf:
'm dismayed at how many subjective judgements needed to be made to
arrive at your estimate of fcs. It leads me to fear that the results of any
such calculation may be more of a reflection on the analyst's investing
biases than statement of fact.
What you are seeing here is not so much analyst subjectivity, but the
result of liberties companies have taken in arranging their records. Below
I will give you a simplified method that will capture the essence.
As such, it may be more reasonable to rely on top line growth and
gross product margins, which are not nearly as murky as earnings, as
metrics.
Gross product margins are still murky, as they do not account for
maintenance expenses - just operating.
Anyway, here is how I suggest that start as you pursue your new passion:
Cash Flow Statement
Under Operating Activities, take Income from Operations
and Depreciation and Amortization. Add them together. Call it X.
Under Financing Activities, take Investments in Property,
Plant, and Equipment Add them together. Call it Y.
You now have two numbers. The difference between the two of them is the
number you seek. X-Y is your operational FCF. Yes, you can get more
sophisticated, but keep it simple for now.
I will now take QCOM's last annual report and will bold the lines you seek.
OPERATING ACTIVITIES:
Net income $670,211 $ 200,879 $ 108,532
Depreciation and amortization 243,842 158,429 141,892
Purchased in-process technology 60,030 - 6,976
Restructuring, impairments and other non-cash charges and credits 88,953 269,449 25,000
Gain on sale of available-for-sale securities (270,132) (5,663) -
Minority interest in income of consolidated subsidiaries 6,264 13,066 48,366
Equity in losses of investees 15,117 15,140 20,731
Non-cash income tax provision (benefit) 481,621 (96,595) (55,581)
Increase (decrease) in cash resulting from changes in:
Accounts receivable, net 233,281 (275,846) (166,827)
Finance receivables, net (372,072) (304,546) (232,451)
Inventories, net (68,776) 40,102 (161,380)
Other current assets (21,507) (7,048) (66,603)
Trade accounts payable (164,756) (5,826) 100,706
Accrued liabilities (99,976) 179,633 174,113
Unearned revenue 10,012 (10,495) 22,039
Other liabilities - 11,554 9,820
------------- ----------------- ------------
Net cash provided (used) by operating activities 812,112 182,233 (24,667)
------------- ----------------- ------------
INVESTING ACTIVITIES:
Capital expenditures (163,182) (180,237) (321,566)
Purchases of available-for-sale securities (993,512) - -
Proceeds from sale of available-for-sale securities 571,492 7,163 -
<snip>
Really, start there. What you are really doing here is adding back in a
non-cash charge and taking a cash charge that earnings doesn't account
for at all. This gives you a reasonably accurate of true profits. And it's
fast - three lines. Later on you can evaluate other lines if you wish.
There is also a way to engineer this from the balance sheet, but let's wait
on that.
- Pirah |
