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

To: Pirah Naman who wrote (60)	10/30/1997 7:41:00 PM
From: Reginald Middleton	Read Replies (3) \| Respond to of 253

<That's the idea. FCF is cash above and beyond what they need to grow the business. What are the acceptable uses for it? Buy back stock, increase dividend, pay down debt, let it pile up and make some acquisition.> Unless a stock buy back action is aimed at fuding a compensation plan, it should be considered a stern warning about MGMT's outlook for future growth. The stock buy back tells the astute investor that mgmt. cannot find an internal/external investment that is forecasted to yield anything higher than its own cost of capital. This is a BIG negative. RCM rcmfinancial.com

To: Pirah Naman who wrote (60)	10/31/1997 12:48:00 AM
From: Greg Jung	Read Replies (1) \| Respond to of 253

I'm still stuck on the basics on this share buyback. I can see a company wanting to just execute a model on a fixed equity base. Total IBM earnings look about constant, earnings per share increases by 3-5% per year - due to share buyback. The business has average net margin of 7%-8%. So after buying the stock the return is cut in half. ? . And one always hears "10-12% growth" when it is mentioned. I -can- see the sense in putting it into something so nobody can foolishly spend it (eg WebTV, TV shows, etc. ...GGG...) but it doesn't add up right for me. Suppose a group of 10 of us held 10 shares each representing $10,000 investment at 10% constant yield. After a year our $1m would be 1,100,000. We take 110,000 and buy out 10 shares. Nobody is richer. We now have 990,000 among nine of us. Greg