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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Uncle Frank who wrote (49256)	11/29/2001 2:48:03 PM
From: Pirah Naman	Read Replies (2) \| Respond to of 54805

uf: The reason you were not able to find at your link is that the Edgar filings at Yahoo are incomplete. You can see this if at that link, you click the option above for the raw filings. Operational cash flow by itself would have made Enron look OK. Also companies have been slipping non-operational items in that section. So I think it would be to your advantage to calculate the free cash flow. I hope I can offer a simple approach to this that will make the process accessible to all. What I would suggest is taking the following lines from the statement. I've taken figures from SEBLs most recent, available here at SI, for easy checking. Top line under cash flow from ops: Net Income. 188,675 Below are "adjustments to reconcile blah blah." Just reading over these can be enlightening or amusing. SEBL has included compensation related to stocks options, tax benefits from stocks options, and loss and gain on investments. These belong in the sections on cash flow from financing and investments, respectively. What you do want is just a couple lines down: Depreciation and amortization. 81,849 If you like, you can add in the "changes in operating assets and liabilities." Just be advised that this can make things look very lumpy if you look quarter by quarter, as these tend to fluctuate a bit. Scroll down to cash flows from investing activities. You want the line that says: Purchases of property and equipment. (218,691) You would then take free cash flow to be net income + depreciation&amortization - purchases of property&equipment. FCF ~ 188,675 + 81,849 - 218,691 = 51,833. In other words, SEBL has earned roughly $50 million in FCF for the first 9 months of the year. If you did choose to add in changes in operating assets and liabilities, that would add roughly another $110 million to that. Either approach is legitimate so long as one is consistent. Either way, I suggest comparing the number to: the reported operating cash flows the reported operating cash flows minus purchases of property & equipment the net income lines on stock options. Looking at these numbers will just give one a better feel for how the business is going. - Pirah

To: Uncle Frank who wrote (49256)	11/29/2001 3:10:51 PM
From: EnricoPalazzo	Read Replies (1) \| Respond to of 54805

Now, going one step further, do you think operational cash flow is an adequate indicator, or is it necessary to try to quantify free cash flow? Operational Cash Flow is absolutely not sufficient, because it only accounts for some of the costs of doing business. Company A makes $10 per year in OCF, and spends $3 per year on capital expenditure. Free Cash Flow is $7 per year. Company B makes $10 per year in OCF, and spends $9 per year on capex. FCF is a mere $1 per year. For Company B, capex eats up the vast majority of operating cash flow. The profits that then accrue to the shareholder are far lower. Also, given that some investors look primarily at Operating Cash Flow, I wouldn't be surprised if some companies tended to hide bad news in Capital Expenditure. Of course, even Free Cash Flow isn't a perfect indicator, because companies can and do manipulate Capital Expenditure to make a given year look better or worse. That's why it pays to look at these numbers over a period of time.