Del 484 - Wiley Finance

Free Cash Flow

Seeing Through the Accounting Fog Machine to Find Great Stocks

Inbunden, Engelska, 2009

Av George C. Christy, George C Christy

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The purpose of this book is to explain Free Cash Flow and how to use it to increase investor return. The author explains the differences between Free Cash Flow and GAAP earnings and lays out the disadvantages of GAAP EPS as well as the advantages of Free Cash Flow. After taking the reader step-by-step through the author's Free Cash Flow statement, the book illustrates with formulas how each of the four deployments of Free Cash Flow can enhance or diminish shareholder return. The book applies the conceptual building blocks of Free Cash Flow and investor return to an actual company: McDonald's. The reader is taken line-by-line through the author's investor return spreadsheet model: (1) three years of McDonald's historical financial statements are modeled; (2) a one-year projection of McDonald's Free Cash Flow and investor return is modeled. Five other restaurant companies are compared to McDonald's and each other using both Free Cash Flow and GAAP metrics.

Produktinformation

Utgivningsdatum2009-03-10
Mått160 x 236 x 23 mm
Vikt390 g
FormatInbunden
SpråkEngelska
SerieWiley Finance
Antal sidor208
FörlagJohn Wiley & Sons Inc
ISBN9780470391754

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Finansiering inom Ekonomi och ledarskap

GEORGE C. CHRISTY, CFA, has more than thirty years' experience in the financial markets. He has served as corporate banker for Fortune 500 and middle market companies, as well as treasurer of a publicly owned telecommunications equipment manufacturer. Christy has a BA from Princeton University and an MBA from the University of Chicago, and holds the Chartered Financial Analyst (CFA) designation. He is a member of the Los Angeles Chapter of Financial Executives International, the CFA Institute, the CFA Society of Los Angeles, the Japan America Society, and the International House of Japan.

Foreword xvPreface xixCHAPTER 1 Investing 101 1Price 1Free Cash Flow 2Risk and Return 3The Return Multiple 4Return and Price 4Debt 6Equity 9Debt versus Equity 11Private Company versus Public Company 12CHAPTER 2 The Accounting Fog Machine 15GAAP: Competing Theories, Matters of Opinion,Political Compromises 16GAAP: Accrual Abuse 17GAAP: Errors Bred by Complexity 17GAAP’S Gap 18GAAP EPS: An Incomplete Definition of Financial Performance 18GAAP EPS: Investing in an Economic Vacuum 18EBITDA is Not a Cash Flow Metric 19The GAAP Cash Flow Statement 19Beware the Balance Sheet 20Liquidity 21Fixed Assets and Depreciation 21Leverage and Debt Service 22Whose Return on Equity? 22The Notes 23When Do Accruals Meet Cash Flows? 23What is to be Done? 24CHAPTER 3 Free Cash Flow 25Reconciliation of Net Income and Free Cash Flow 25Free Cash Flow versus Net Income 27A Universal Definition? 28Academic Research and the Discounted Cash Flow Model 29Barron’s Rankings 30Buy-Side Users 31Private Equity Firms 31Warren Who? 31A Vast Media Conspiracy? 32FASB Staff Findings 32FAS 95: A Cruel Rule 33EPS Misses: The Real Deal 33An Alternative to the Government Number 34CHAPTER 4 The Free Cash Flow Statement 35Building the Free Cash Flow Statement 35Four Key Questions 40Revenues 41Operating Cash Flow 43Δ Working Capital 44Capex 45Capex: Magnitude and Risk 46Capex and Capital 47Capex Transfer 48Capex Visibility 48Capex and Investor Return 49Free Cash Flow 49Free Cash Flow Yield 50CHAPTER 5 Free Cash Flow Deployment 53Acquisitions 54Buybacks 56Dividends 59Debt 60Projecting Investor Return 61CHAPTER 6 The Free Cash Flow Worksheet 65Worksheet Features 66Entering Historical Data 68Adjustments to GAAP Cash Flow 68Operating Cash Flow 71Capex 71From the Balance Sheet 72The Free Cash Flow Statement 73GAAP Data 74Percentages 75Per Share Data 76Incremental Data and Company’s Reinvestment Return 77Cash Sources and Deployments 78Acquisitions 80Buybacks 80Dividends 81Debt 82Operations 82Projecting Free Cash Flow 83Projecting Cash Sources 86Projecting Acquisitions 87Projecting Δ in Share Value Due to Δ in the Number of Shares 88Projecting Investor Return from Dividends 90Projecting Δ in Share Value Due To Δ in Debt 91Projecting Δ in Share Value from Operations 94GAAP Data, Percentages, and Per Share Data 94Incremental Data and Company’s Reinvestment Return 95Investor Return Projection 96Return Multiple 98Adding Periods to the Worksheet 100Using the Worksheet 100CHAPTER 7 Six Companies 101Revenues 102Percentage Change in Revenues 102Operating Cash Flow Margin 103Capex as a Percentage of Revenues 105Free Cash Flow Margin 106Free Cash Flow Per Share 107The Government Number 109Net Nonworking Capital Items 109McDonald’s 111Panera Bread 113Applebee’s 114P. F. Chang’s Bistro 115Cheesecake Factory 116IHOP 118Three Musketeers without New Unit Capex 121Whose Return on Equity? 121Sell-Side Analysts 124Total Returns 125Take Your Pick 125CHAPTER 8 The CEO and Investor Return 129The CEO’s Letter to Shareholders 129The Quarterly Earnings Conference Call 135The CEO’s Incentive Compensation 137CHAPTER 9 Finding Great Stocks 145The Nine Steps 145Diversification for Individual Investors 150Equity Mutual Funds 151Free Cash Flow and Bonds 152Free Cash Flow and the Financial Crisis of 2008 152APPENDIX A Equations 153APPENDIX B McDonald’s Income Statement 159APPENDIX C McDonald’s Balance Sheet 162APPENDIX D McDonald’s ROIIC and Weighting 164APPENDIX E McDonald’s ROIIC Calculations 165APPENDIX F Recommended Reading 168Notes 171Acknowledgments 174About the Author 175About the Website 176Index 177