Quantitative measure of Free Cash Flow level

[heisenbern]

Is there a way to distinguish when a company has a "healthy" value of Free Cash Flow?

I guess what I am asking is, is there another company metric that I can take the ration of Cash Flow vs that metric that will tell me if the company has high cash flow because it is selling bonds instead of generating cash from the actual business it's in?

"The opposite can also be true. A company may be receiving massive inflows of cash, but only because it is selling off its long-term assets. A company that is selling itself for parts may be building up liquidity, but it is limiting its potential for growth in the long term, and perhaps setting itself up to fail. In the same vein, a company may be taking in cash by issuing bonds and taking on unsustainable levels of debt. For these reasons it is necessary to view a company's cash flow statement, balance sheet and income statement together."

Read more:Cash Flow http://www.investopedia.com/terms/c/cashflow.asp#ixzz4nrTM3ijv

 

[DeltaRisk]

No. Read Enron's case study, those reports are available to be manipulated via back door in software.

Not saying I'm right. Just take a minute to read before you invest.

Hey, Arthur Andrersen got destroyed for creative accounting. But, what do I know?

 

[vanzandt]

Is there a way to distinguish when a company has a "healthy" value of Free Cash Flow?

I guess what I am asking is, is there another company metric that I can take the ration of Cash Flow vs that metric that will tell me if the company has high cash flow because it is selling bonds instead of generating cash from the actual business it's in?

"The opposite can also be true. A company may be receiving massive inflows of cash, but only because it is selling off its long-term assets. A company that is selling itself for parts may be building up liquidity, but it is limiting its potential for growth in the long term, and perhaps setting itself up to fail. In the same vein, a company may be taking in cash by issuing bonds and taking on unsustainable levels of debt. For these reasons it is necessary to view a company's cash flow statement, balance sheet and income statement together."

Read more:Cash Flow http://www.investopedia.com/terms/c/cashflow.asp#ixzz4nrTM3ijv

You just gotta read their latest reports dude. Its all there.

 

[newwurldmn]

Is there a way to distinguish when a company has a "healthy" value of Free Cash Flow?

I guess what I am asking is, is there another company metric that I can take the ration of Cash Flow vs that metric that will tell me if the company has high cash flow because it is selling bonds instead of generating cash from the actual business it's in?

"The opposite can also be true. A company may be receiving massive inflows of cash, but only because it is selling off its long-term assets. A company that is selling itself for parts may be building up liquidity, but it is limiting its potential for growth in the long term, and perhaps setting itself up to fail. In the same vein, a company may be taking in cash by issuing bonds and taking on unsustainable levels of debt. For these reasons it is necessary to view a company's cash flow statement, balance sheet and income statement together."

Read more:Cash Flow http://www.investopedia.com/terms/c/cashflow.asp#ixzz4nrTM3ijv

you have to take FCF with a grain of salt.
1. Firstly, issuing bonds is part of CFF (cash from financing) so it's on a separate line.
2. Selling assets would be under FCF (i believe) as that's part of CFI (cash from investing), but what matters is what the asset is booked as. If the asset was fully written off and they are able to sell it for real money, then that's positive.
3. FCF is generally negative as a business grows. This is because working capital and CAPEX investments will suck up the cash.
4. Finally, Cashflow by itself is a pretty volatile number as receivables and accruals can vary widely in different points of time.

A better proxy might be EBITDA - CAPEX. It will solve for all four issues above. It will not reflect change in capital structure (which will affect returns on equity).

In both cases, EBITDA and FCF are good measures when depreciation is high (like a cable company or a real estate company). They will have high depreciation expenses but these are just accounting numbers.

 

[DeltaRisk]

you have to take FCF with a grain of salt.
1. Firstly, issuing bonds is part of CFF (cash from financing) so it's on a separate line.
2. Selling assets would be under FCF (i believe) as that's part of CFI (cash from investing), but what matters is what the asset is booked as. If the asset was fully written off and they are able to sell it for real money, then that's positive.
3. FCF is generally negative as a business grows. This is because working capital and CAPEX investments will suck up the cash.
4. Finally, Cashflow by itself is a pretty volatile number as receivables and accruals can vary widely in different points of time.

A better proxy might be EBITDA - CAPEX. It will solve for all four issues above. It will not reflect change in capital structure (which will affect returns on equity).

In both cases, EBITDA and FCF are good measures when depreciation is high (like a cable company or a real estate company). They will have high depreciation expenses but these are just accounting numbers.

You're very smart, but I've got one exception.
This does not apply to Banks.
Balance sheets are not applicable to banks as they are in a class of there own.

Double book accounting & credit creation make it so. And, lets not forget the off book transactions.

 

[newwurldmn]

You're very smart, but I've got one exception.
This does not apply to Banks.
Balance sheets are not applicable to banks as they are in a class of there own.

Double book accounting & credit creation make it so. And, lets not forget the off book transactions.

Yeah. Banks and other financial institutions are a completely different animal.

 

[NominalSpeculator]

if the question is in relationship to banks then the only real cash flow measure that should matter to you is dividends.