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

To: jbe who wrote (77)	10/31/1997 2:25:00 PM
From: Pirah Naman	Respond to of 253

jbe: Since you asked my opinion :-) be aware that the foloowing are only opinions: 1) Morningstar gets its data right out of the yearly 10Ks. But can you explain how they interpret the raw numbers? The capital expenses aren't as cut and dried as you might imagine, and as Andrew and I have discussed, VL smoothes out one time events. E.g., take CA. They had a huge write-off for buying a software company in 1996, which has most sources showing them with negative earnings. That masks operating performance completely, I think you'll agree. More to the point, since earnings are a part of FCF...forget the specifics of CA for a second. What if a cash rich company bought another company, as a way to grow their business, and takes that charge? Are they merely wisely using their excess FCF, or are they demonstrating poor FCF? 2) MarketGuide is a respected and widely-used source. I've only had access to their free stuff. It is good, but not great. Again how do they make their calculations? 3) The S&P reports are of course, prestigious -- and expensive, The S&P two page reports, which give cash flow and cap expenses for every year for the past 13(?) are free for me. Waterhouse gives them for the asking. One of my local libraries gets them on a regular basis - they have thick binders with NAZ, ASE, NYSE stocks. 4) And then there is Value Line. Which for the most part gives fairly consistent numbers with S&P. If two independent (i.e., not associated with trading) organizations get about the same numbers, I'm inclined to believe they are probably in most cases vaguely right. 5) should we trust Source A more than Source B, and if so, why? The best sources are the Edgar filings and annual reports. Free. If we are willing to use our pencils. VL at least gives you enough of the details so you can check their work, and they have a booklet which explains both how to use their guide and their methods. But any of these sources can be checked using the Edgar filings and company reports. That's the key to telling who can be trusted. My finding was that both S&P and VL got values about what I did when I tried to extract from the official reports. But you should not trust me; I make transcription errors! One opinion in which I am confident: since I have seen the un-interpreted numbers, the source that is giving you a price/FCF ratio for CPQ of 12.8 and SUNW of 28.7 (Or whatever, I'm going by memory) is not one I would trust. Pirah

To: jbe who wrote (77)	10/31/1997 5:08:00 PM
From: Pirah Naman	Read Replies (1) \| Respond to of 253

jbe: Told ya not to trust me. I did indeed make some transcription errors. Just dug out the following figures (double checked even): Company 96CF 96CE 97CF 97CE 98CF 98CE CSCO 1.61 0.44 2.42 0.49 3.10 0.65 CPQ 2.34 0.50 3.40 0.60 4.15 0.60 IBM 10.67 5.79 12.00 5.80 SUNW 2.17 0.79 2.91 1.50 3.50 0.85 MLHR 2.06 1.10 2.88 1.18 3.50 2.00 All 98 figures, and the 97 figures for CPQ and IBM, are projections. As you can see I made an error with SUNW's figures before. Pirah