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To: 49erfan09 who wrote (39412)	9/25/2010 11:24:39 PM
From: EL KABONG!!!	Respond to of 78702

I don't have a set method for calculating free cash flow, but I define it simply as corporate discretionary spending, as measured in available dollars. Every company needs free cash flow to pay for things like shareholder dividends, or research/development of new products or new ideas, interest payments on potential future loans or bonds, and potential expansion of existing payroll (whether in the form of increased compensation or additional staffing). When examining the numbers of a third party company as a possible acquisition, the free cash flow of the about to be purchased firm is one measure of that firm's ability to enhance the bottom line of the acquiring company. Free cash flow is also used by potential bond purchasers to determine any likely/unlikely possibility of future default. The actual calculation of free cash flow can (and in my opinion, should) vary from company to company and industry to industry. It just doesn't make sense (to me) to try to calculate the free cash flow for a regional bank using the exact same formula as one might use in calculating the free cash flow of a multinational manufacturer. Just one man's opinion though... EK!!!

To: 49erfan09 who wrote (39412)	9/27/2010 10:02:05 AM
From: Spekulatius	Read Replies (2) \| Respond to of 78702

Free cash flow - FCF. My current take is that FCF is less important for investment success then I thought a few years ago. My observation is that companies with a high FCF ( meaning they generate more funds than they can reinvest in their business) often tend to put this money at work where it does not seem to benefit shareholders. Examples are HPQ (which i own) with their skimpy dividend and their bidding wars with 3PAR. There are sectors that would fail and FCF screen and still do well - utilities being one example (they outperformed the SP500 for many years). Utilities mostly pay dividends and reinvest in their own business, sometime incurring debt to do so. This is a very straightforward business. Mergers do happen but they are typically fully paid in stock and only pay modest premiums. Utilities only got into trouble when they followed Enron into their "asset light" business model and energy trading. Other sectors that have been doing well are mining and energy. In both business, the companies tend to reinvest most cash flow in their business and into hard assets. However if you compare companies within the same industry group, those that generate FCF are preferable to those that do not, everything else being equal (which is mostly not case).