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To: Uncle Frank who wrote (49288)	11/30/2001 9:23:50 AM
From: JHP	Respond to of 54805

Frank you must have missed this post:^) To:Uncle Frank who wrote (49252) From: Mucho Maas Thursday, Nov 29, 2001 1:22 PM Respond to of 49288 Can you suggest a way to improve my odds of finding those important measures? part of the problem is that you need to know where the cash is coming from. this is what fooled so many people who were impressed by cos like CSCO but didn't understand their cash flows. you need to see what is cash flow from continuing operations, but then some companies stick all kinds of financial crap in there (like tax credits from stock options) that i wouldn't consider operations. so one must peel back the layers of the onion. imagine you are a detective or prosecutor interviewing a suspect. do you think he is going to willfully say things that implicate himself? probably not. you need to peel away the layers, and the only way to do that is to know what games they play. it would be one helluva pollyanna world if companies published numbers that were true in the spirit of the law as opposed to the letter. so i think the first step, if one wants to gain some investigative competence, is to understand the principles of financial accounting and financial statements. i think that would help a lot as these statements are rather confusing to the layman, despite the plain-language movement. a lot of names come up at Amazon when you enter "financial statements" or "financial analysis". also, i think there's no better place to start than to look at how some ace "detectives" have examined the public statements of cos. in particular, i am impressed by the work of Robert Tracy. i have posted many links to such articles on sites like grantsinvestor. actually, Grant's Interest Rate Observer is imho another good source for this investigative accounting, although the subscription is fairly steep. Jim Grant is arguably the most eloquent financial writer ever.

To: Uncle Frank who wrote (49288)	11/30/2001 11:35:30 AM
From: Thomas Mercer-Hursh	Respond to of 54805

Which do you prefer, Thomas? Where did you get the idea I had this figured out?

To: Uncle Frank who wrote (49288)	11/30/2001 11:41:29 AM
From: Stock Farmer	Respond to of 54805

I haven't yet chosen between operational cash flow and free cash flow for the metric. It is unwise to value a company using operational cash flow. This is because it contains three effects. The first is profit from the enterprise, which we absolutely must include in any estimation for future profits. The second represents payment of cash in carrying out the business, which is where the waters get very muddy. It includes the cash flow effect of stock options on income taxes and various other write-downs and adjustments which properly do or do not consume cash, but which it's hard to say are or are not a product of the core business. So it's case by case whether we should use these effects in valuing the business. The third represents the cash effect of changes in working capital (shifting assets between accounts, one of which is cash). For example, if you cash a certified check you were holding, your cash on hand increases (positive cash flow), but your value (assets minus liabilities) is unchanged. Puts and takes such as these must not be used to value the business. Operating Cash Flow contains all three effects, some we must include, others we must not and still others where it's not clear. It is not wise to value the business based on such a sum. More important to dive in and look at the individual line items. Tip-of-the-iceberg as Thomas put it. John