Free Cash Flow Uses: How to Decode This Most Important Metric
Most investors obsess over earnings. But here’s the truth: earnings don’t pay dividends. Free cash flow does. Free cash flow is the money left over after a company pays its bills and invests in equipment, inventory, and growth. It’s the cash a CEO can actually deploy—to reward shareholders with dividends, buy back stock, pay down […]
Free Cash Flow Yield – Finding Gushing Cash Flow for Future Growth
Cash is king, and free cash flow is the oil that keeps the engine running. Determining free cash flow and understanding its various uses remains one of the best ways to identify great companies that can grow well into the future. Free cash flow yield is an especially simple and effective metric for finding those […]
Levered Free Cash Flow: The Core Lessons from Valuation Textbooks [Distilled]
Free cash flow and a “DCF” (a way to guess what a company is worth) go together like peanut butter and jelly. But there is a specific type of cash flow called levered free cash flow (also known as FCFE). Should you use it to value a company? How does debt change a company’s value? […]
What Company Earnings Are Telling Us About Today’s Economy
Want to go deeper on real companies with simple, long-term investing guidance? Subscribe to the Value Spotlight newsletter, where Dave and Andrew share stock ideas, valuations, and lessons from real businesses straight to your inbox. In this episode, Dave and Andrew take a stroll through the latest earnings reports from some of the world’s biggest […]
Maintenance vs Growth Capital Expenditures – A Quick Primer
We may sound like a broken record when talking about ROIC, free cash flow per share, and DCF analysis when valuing a stock. But they are important. Making estimates for future free cash flow and ROIC requires understanding a company’s capital expenditures (capex). Specifically, investors need to understand the difference between growth capex and maintenance capex. This graphic explains the concept in […]
SEC Form 4 Explained for Beginners
When a CFO buys, the market listens. One of the best ways to track how management feels about their company is to watch for insider buying or selling. The required Form 4 discloses to investors any trades that leadership makes regarding stock options. With the increase of pay for insiders (C-suite) in the way of […]
Free Cash Flow vs. Adjusted EBITDA
Executives of public companies like to paint their businesses in a positive light. When communicating with investors – a process known as investor relations – they will make various adjustments to their financial statements to try and convince Wall Street to buy stakes in their businesses. The most popular of these is adjusted EBITDA. You’ve […]
Net Debt to EBITDA Guide: Risks, Valuation, Examples, and S&P 500 Data
Updated 8/25/2023 Net Debt to EBITDA ratio is a common tool for measuring risk. It’s often listed in company financials. The logic is simple, and the ratio isn’t terribly complex; let’s see how to calculate it ourselves. In this post, we will cover [Click to skip ahead]: Let’s dive in.
Operating Leverage Formula: How to Calculate It with the Income Statement
Updated 9/3/2023 “For a fundamental investor, anticipating revisions in expectations is the key to generating attractive returns. Sources of those revisions include fundamental outcomes (typically earnings revisions) and an assessment of how the market will value those fundamentals (multiple expansion or contraction). Investors who are able to forecast earnings in a year’s time that are […]
Analyzing Intangible Assets and Their Impact To Assets and Operating Income
The change in how companies invest their capital has grown exponentially, and accounting rules have not kept up. Intangible assets comprise a larger portion of a company’s equity and assets than twenty years ago. While at the same the amount of physical assets on companies’ balance sheets has dropped. That shift has occurred during the […]
