Company ABC.
1995 Earnings $100,000 FCF -$7.0million
1996 Earnings $5.9million FCF -$28.0million
1997 Earnings $12.3million FCF -$57.4million
Nice growth in earnings, right?
FCFs also grew - but in the opposite direction as earnings.
Company OPQ.
1997 Earnings $6,945million FCF +$5,507million
1998 Earnings $6,068million FCF +$5,634million
1999 Earnings $7.932million FCF +$7,932million
Nice growth in earnings, right?
FCFs also grew - but in this case, in tandem or the same direction as earnings.
Company ABC's capital spending as a percentage of its long-term assets has been as high as 43%.
Company OPQ has an annual capital spending of $3 billion or so, and its long-term assets are about $12 billion. That spending works out to 25% of its long-term assets, a pretty high figure.
Both Company ABC and Company OPQ spend vast sums relative to their asset bases. However, we see a big difference when we look at their respective FCFs.
1995 Earnings $100,000 FCF -$7.0million
1996 Earnings $5.9million FCF -$28.0million
1997 Earnings $12.3million FCF -$57.4million
Nice growth in earnings, right?
FCFs also grew - but in the opposite direction as earnings.
Company OPQ.
1997 Earnings $6,945million FCF +$5,507million
1998 Earnings $6,068million FCF +$5,634million
1999 Earnings $7.932million FCF +$7,932million
Nice growth in earnings, right?
FCFs also grew - but in this case, in tandem or the same direction as earnings.
Company ABC's capital spending as a percentage of its long-term assets has been as high as 43%.
Company OPQ has an annual capital spending of $3 billion or so, and its long-term assets are about $12 billion. That spending works out to 25% of its long-term assets, a pretty high figure.
Both Company ABC and Company OPQ spend vast sums relative to their asset bases. However, we see a big difference when we look at their respective FCFs.
- These positive FCFs mean Company OPQ has money left over even after its large capital-spending budgets.
- By contrast, Company ABC, must turn to investors or lenders to make up the difference. Only by selling new shares to the public or taking out a loan can Company ABC fund its aggressive spending.
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