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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (126)	4/2/1998 8:27:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 1722

A little more on the S&P Free Cash numbers. The free cash numbers from the S&P that were presented were after dividend numbers (I am pretty sure). Since we now have a much lower payout ratio, the free flow numbers that were presented automatically had to rise without representing any actual increase in free cash the way we discuss it. There are less dividends per dollar earned so there is more free cash the way they presented it. Here is one other reason they are an illusion. This is from one of my own companies. Tootsie Roll! Tootsie Roll earns a very high return on its non-cash equity (it has a pile of cash) There seems to be a limit to how many Tootsie factories they can build and be effective. So instead, several years ago they bought Charms Pops. I consider this capital spending. It clearly wasn't distributable cash after they bought the Charms company so it wasn't free cash. The difference is that they bought factories, equipment, etc... instead of building them. There is much more of that going on in the last decade. I know that Value Line doesn't include this type of thing as capital spending but it is the equivalent. Without that purchase they would have had more free cash but the growth would have been slower since then. It is an investment that is no longer distributable just like capital spending.