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

To: Uncle Frank who wrote (49265)	11/29/2001 6:41:32 PM
From: EnricoPalazzo	Read Replies (1) \| Respond to of 54805

In the case of companies that make no capex, how does the retained cash accrue to the shareholder? Dividends? Well, Dividends in some cases, for tech companies usually just retained earnings spent on other things. Company A in the example before made $10 in cash from "operating cash flow", but had to give $3 of it away to suppliers in order to buy the capital needed to keep going (e.g. computers, buildings, factories). That leaves $7 in cash that they can do whatever they want with--give it to shareholders as dividends, buy back stock, or re-invest in the business by plowing into R&D. That is in a very real sense, $7 that was added to the value of the company. Naturally, some companies will squander this $7 via dumb acquisitions or silly R&D projects. Company B, on the other hand, made $10, but had to give $9 away to suppliers, leaving only $1 of value that can accrue to shareholders.