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

To: Andrew who wrote (63)	10/30/1997 9:50:00 PM
From: Reginald Middleton	Read Replies (2) \| Respond to of 253

<At the same time it accelerates per share growth by concentrating (vs. diluting) it ownership. This is a more tax-efficient method of rewarding long-term shareholders than dividends> Per share growth does not increase the value of the entity itself, and is therefore quite misleading. That is one of the major tenets favoring DCF over earnings capitalization. <<If they have cash above and beyond all well-planned capital investments required for optimum growth in their existing business, it is entirely appropriate to use existing cash to increase shareholder value in other ways.> Of course.. <They could make aquistions, pay higher dividends or buyback shares. I think buying back shares points out to the astute investor that the company views its stock as undervalued relative to expected future growth.> It primarily means that they believe they cannot grow the enterprise (investment in the enterprise consists of much more than aqcuisitions - ex. R&D, upfront marketing, etc.) at a rate that exceeds the markets expectations. That is usually why the stock's price was depressed to begin with. A much more efficient use of said funds would be investment to actually improve the value of the entity itself and not the entity's per share earnings. Just imagine the share price of MSFT if it had spent the bulk of thier FCF dollars on buying back its shares instead of developing Windows 95 (which had a spectular return on investment BTW).