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

To: Reginald Middleton who wrote (190)	11/10/1997 7:43:00 PM
From: Pirah Naman	Read Replies (1) \| Respond to of 253

While I agree with the point you are making, a clarification: > FCF tells you nothing outside of how much money is in the company's checking accounts. Cash/short term investments may give you that, but not trailing FCF. Also while it may not have been your intent, some of your writings have suggested that FCF - based pricing does not project future FCFs and discount them. It does both, and while you use additional parameters compared to most, "your" method is a FCF - based pricing method.

To: Reginald Middleton who wrote (190)	11/10/1997 9:09:00 PM
From: jbe	Respond to of 253

Reginald, may I repeat what is fast becoming my motto once again: There Is More Than One Way To Skin a Cat. It is true that I personally can't ascertain a fair price by "simply looking at free cash flow." I can't, because I personally do not have the financial expertise to do so. However, there are some highly qualified financial analysts who do just that, including the gentlemen who wrote the book (Cash Flow and Security Analysis) that I cite in my opening post. And they do have a method for projecting discounted future free cash flows, and for ascertaining a fair price. The mathematical formulae they use are a bit too complex for me, but you might take a look at them. This is not to say that their method is the ONLY way to value stocks. In my opinion, in these matters, as in any other area of life, there is no ONE SINGLE WAY. As for my dwelling on "pure" free cash flow, I do so for a specific reason. It seems to me that we have first to establish just what a given company's present and past free cash flow was/is, before we can even think of projecting what it will be in the future.

To: Reginald Middleton who wrote (190)	11/11/1997 12:34:00 AM
From: Pancho Villa	Read Replies (1) \| Respond to of 253

Hi guys! look at TLC as a perfect example of the street valuing CF and not earnings. I tell you once more the year 2000 stocks are textbook example of extremelly overvalued stocks look at ZITL and ACLY at Roger's thread. Pancho

To: Reginald Middleton who wrote (190)	11/11/1997 6:36:00 PM
From: Andrew	Read Replies (2) \| Respond to of 253

Reginald, "I asked the question to prove a point. You cannot ascertain a fair price of a company by simply looking at free cash flow. You have to project cash flows out to a future date and discount them back to the present using an appropriate discount rate (usually the WACC - weighted average cost of capital). Earlier you were attempting to differentiate between FCF and "my" methods, when in actuality pure FCF tells you nothing outside of how much money is in the company's checking accounts." I thought you were against this???? " FCF does not tell the whole story. FCF is part of the picture, but like I was telling Andrew, companies that efficiently invest all of thier FCF are worth more, while it appears that many on this thread think that the most FCF you have, the better. My methods do not subscribe to that mindset. FCF methods do not project FCF's and discount them, DCF methods do. there is a difference, eventhough many would consider it a matter of semantics." Semantics indeed. I would propose DFCF instead of DCF which is misleading (sounds like just "cash flow"). And I would indeed say, for a given future rate of growth, the more FCF you have, the better. Or if you want to throw WACC and risk into the mix, why not "All else being equal, the more FCF the better". Andrew