Back to basics about free cash flow

Accounting is but an aid to business thinking, never a substitute for it
Accounting is but an aid to business thinking, never a substitute for it
The best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return
Despite this problem, we consider the owner earnings figure, not the GAAP figure, to be the relevant item for valuation purposes
“If you can look into the seeds of time,
And say which grain will grow and which will not,
Speak then to me.”
If a company’s capital expenditures are simply maintaining the company’s position in its markets, it free cash flow may be unduly high
I am not attuned to this market environment, and I don’t want to spoil a decent record by trying to play a game I don’t understand just so I can go out a hero.
No company under consideration will even be close to scrambling to pay its creditors.
Free cash flow yield can be a better indicator when return on capital (ROC) becomes a vanity metric that unduly flatters economic performance and management. We can charge management with the full cost of Economic Goodwill.
Superb companies produce a very high return on capital. But when substantial intangible assets don’t show up on balance sheets, the ROC numbers are unduly flattering to management.
There is a lot of talk currently about the underperformance of value stocks compared with growth stocks over the last fifteen years. In fact, value investing has performed well against all other styles. This seeming contradiction comes from the fact that value investing and investing in value stocks are not the same thing.
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