By George C. Christy
The aim of this e-book is to provide an explanation for unfastened funds stream and the way to exploit it to extend investor go back. the writer explains the diversities among unfastened money stream and GAAP profits and lays out the hazards of GAAP EPS in addition to the benefits of loose funds movement. After taking the reader step by step during the author's unfastened funds move assertion, the e-book illustrates with formulation how all the 4 deployments of loose funds circulation can increase or curb shareholder go back. The e-book applies the conceptual development blocks of unfastened funds movement and investor go back to an exact corporation: McDonald's. The reader is taken line-by-line in the course of the author's investor go back spreadsheet version: (1) 3 years of McDonald's historic monetary statements are modeled; (2) a one-year projection of McDonald's unfastened money circulation and investor go back is modeled. 5 different eating place businesses are in comparison to McDonald's and every different utilizing either loose money circulation and GAAP metrics.
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Extra info for Free Cash Flow: Seeing Through the Accounting Fog Machine to Find Great Stocks (Wiley Finance)
In FAS 95, the FASB prohibits Free Cash Flow per share from appearing in financial statements prepared in accordance with Generally Accepted Accounting Principles. That means if a public company wanted to include its Free Cash Flow per share numbers in its financial statements, the company could not receive a clean opinion from its outside auditors. Why would the FASB take the trouble to prohibit a Free Cash Flow per share number from appearing in public company financial disclosures? Here’s one guess: The SEC and the FASB believe American investors are not smart enough to use Free Cash Flow per share.
Net income plus depreciation and minus capital expenditures and dividends. . ”6 So Schwab’s Free Cash Flow definition differs from our definition because they exclude Working Capital changes and the other items in the Operating section of the GAAP Cash Flow, and they include dividends. 7 There was a new champ in the six-month and one-year categories: Matrix USA. Morgan Keegan was in first place for the three-year period. Goldman Sachs and Schwab were essentially tied for first place for five years with Smith Barney coming in a close third.
GAAP EPS: Investing in an Economic Vacuum EPS is a noncash (actually an anticash) metric. Investors seek cash returns. Free Cash Flow enables investors to assess a company’s financial performance and prospects, per item 5 above, and then to compare the potential return from an investment in the company to the potential returns from investing in alternative investments. A UNIVERSAL DEFINITION? There is no generally accepted definition of Free Cash Flow. Some investors exclude changes in Working Capital from the definition.