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Strategies & Market Trends : Free Cash Flow as Value Criterion -- Ignore unavailable to you. Want to Upgrade?

To: jbe who wrote (43)	10/29/1997 12:47:00 PM
From: Pirah Naman	Respond to of 253

jbe: Yes it is very similar. His adding in of (debt-cash) is appropriate, and in fact that is what I do on my full spreadsheet. (Not what I did when trying to get some quick and dirty numbers for you to compare against your method.) His actual judgement of cash flows are not any better or worse than what we are doing, I think. What I mean by that is though he is getting more into the details, and no doubt knows the numbers better than we do, any additional precision is probably illusory. Pirah

To: jbe who wrote (43)	10/29/1997 1:33:00 PM
From: Andrew	Read Replies (2) \| Respond to of 253

I will have to protest that this famous guy just swiped my "Absolute Value" (tm) theorem. There's no damn justice! He talks about absolute value, but then he basically calculates a complicated P/FCF variant. I think he's managed to confuse himself. Still, his heart's in the right place!<g> Wouldn't it be nice if he'd come along here and prove me wrong. Sounds like he knows a bit of accounting... "even a total slug of a company will appear undervalued. Given this, what does such a test tell you? Not much. It can be used to weed out something incredibly overpriced and that's it." What if it's a verrrryyyy dependable slug?<g> Like you said, qualitative analysis is much more important than valuation. Why do a valuation on a company that you don't understand, or have little faith in? But if you do feel very strongly about a company such as MCD, and after very careful qualitative analysis are utterly convinced about the approximate cash flows, in fact are even more convinced than about most companies who have good FCF now, how much should you pay? "STOP YAMMERING ON AND ON ABOUT MCDONALD'S ANDREW!!! We know you can't help yourself and are trying to rationalize yesterday's foolhardy plunge into the maw of market upheaval, but SHADDUP ALREADY!" Ok, Ok...how about a compromise. I tried to do this as a check - you guys might like it. I did my estimating voodoo stuff, and created an imaginary year about 5 years out. I calculated that imaginary year's rough FCF. I applied a "reasonable" multiple to it. It looked like a 3-bagger in 5. I don't think it addresses my "absolute" value concerns, but it does look ahead to the future a bit...and it's not all equation-y. Hey guys! I'm up 1% on my MCD already !! I declare the experiment a success, and refuse to be judged at a later date. Unless it goes up. A lot. I should drink less coffee I think... Andrew