CashFlow - The ultimate thing!
Printed From: The Equity Desk
Category: Market Strategies
Forum Name: Equity Valuation Techniques
Forum Discription: While valuing equities no individual technique works. Mostly it is a combination of techniques. Discuss the various techniques in equity valuation ranging from PE to RoE to Market Cap
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=1167
Printed Date: 19/Apr/2025 at 3:23am
Topic: CashFlow - The ultimate thing!
Posted By: smartcat
Subject: CashFlow - The ultimate thing!
Date Posted: 28/Aug/2007 at 6:56pm
| Dish should hit 81-82 levels but the chart pattern is not suggestive of a big upmove. Till 94 is taken out, the upmove should be taken as a bounce rather than the change in the trend |
This statement is a bit like poetry. I don't understand what it means but feels good to read it.
|
Replies:
Posted By: Vivek Sukhani
Date Posted: 28/Aug/2007 at 6:58pm
|
well, i beleive the case is different from i made out to be.....Averaging has certain rules and levels have to be taken with some consideration. As I say, too much loyalty is a matter of dogs, so in case you beleive in the fundamentals of a company, cherry pick your levels and just dont go and do the averaging exercises like that. I have a friend who beleived in the ethanol story and made thre back to back averaging in bajaj hindustan. you may rubbish him off at this moment by saying sugar is a commodity play, but then also pay due consideration to the fact that dish etc. are not free cash surplus game, so in case you indulge in a growth play , be very strict on that count. Now not for a single moment I am saying anything against Dish but Tyler Sirji, people have limited cash surplus to do an averaging exercise just like that( in most of the cases, your case may be different though). Conviction is very often a matter of personal circumstances and most of the people i know generally dont do the averaging for the second time( meaning they buy at just 2 levels). I hope this comment sparks off a healthy discussion about cash generation criteria for individual stock picking.
Also, will be glad if you dont add suffices like ji to my name. I think ji spoils the meaning of my name.
Hope you will take this post in the right spirit.....
Cheers and Vande Mataram
|
Posted By: smartcat
Date Posted: 28/Aug/2007 at 7:16pm
|
>>> free cash surplus
>>> cash generation criteria
There are some growth investors who see free cash flows negatively. Now for a value investor, this statement might be difficult to swallow.
If Bharti/RCom (for example) start generating free cash flows, it means the existing infrastructure is enough to support the new subscriber additions. It could mean the growth is slowing down in the sector/ business and should warrant a review of investment.
|
Posted By: basant
Date Posted: 28/Aug/2007 at 7:21pm
DTH business is free cash flow presently the one year free scheme is accounting for the losses. Pantaloon with negative cash flow has been up 60 times in 4 years.It is still cash flow negative!!!
-------------
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
|
Posted By: tyler_durden
Date Posted: 28/Aug/2007 at 7:23pm
|
post taken in absolute right spirit vivek...you re a technically sound person..
1. what about a person who does not have any knowledge about support and resistance levels...how will he know whether to average out at 70 or 60 or 50...you can easily do that...but for others its tought to find the bottom....
2. i dont have anything to do with dish tv...i just pitched in because people who have bought the stock based on fundamentals were getting baffled because of technicals....
-------------
If you aren't fired with enthusiasm, you will be fired with enthusiasm.
|
Posted By: CHINKI
Date Posted: 28/Aug/2007 at 9:18pm
Everybody knows that lot of money is made depending on at what price you buy any stock.
But someone who is assured of the management capability and business scalability/opportunity, should buy at a level comfortable to him. Rs.10/- to Rs.20/- difference will not make much differences in the long term.
Timing the market or try to find out the bottom/top of any stock price is like trying to find a needle in the hay.
When I started investing in Dish TV, I had never thought that DTH can be put for a car or a train. This is the additional source of revenue for the operator.
As far as the competition is concerned, bigger it is more will be the innovations. Hence more sales/revenues.
Talking about TATA SKY being leading in Kolkata. I remember of seeing Dish TV connections everyhwhere in the remote parts of Coorg almost two years back. So each DTH player will have list of places where they are strong.
-------------
TOUGH TIMES NEVER LAST, BUT TOUGH PEOPLE DO
|
Posted By: Vivek Sukhani
Date Posted: 28/Aug/2007 at 11:01pm
|
I will like to stick to academic discussion here only...whether pantaloon was up or down or bharti was up or down or Rcom is very stock specific and hence irrelevant for this discussion. If pantaloon has been huge then Pyramid saimira or a shopper's Stop or a Trent has been nothing of a sort of a performer. Tata Tele has been nothing short of a disaster, so whether price has gone up or down, is something I wont like to talk about. all I intend to say is that when the stock is going up, you ignore cash flows but when it comes down things which were being overlooked becomes important. It all depends how they manage growth. You have to come up with crackers of quarter and no doubt market will reward a growing( more revenues)and performing( meaning profits) business more than a mere performing business(only profits, but no topline growth) or a growing business(only increased turnover but not accompanied by rise in profits). I think Dish has to show both the topline as well as bottomline growth to attract investors. somethink what educomp is doing. .....and here I would again like to confess, i was horribly wrong and hence I regard growth companies as decent investment prospects if they set up good profit streams. Opto is another case in point.....strong topline growth and even stronger bottomline growth.
Tyler, supports and resistances are all in the mental makeup. The discretion I was talking about was more in the context of apllying the mental strategies and in order to be successful for averaging one should spread average points to suit the risk management needs. Its better to have a small position and then do an averaging at lesser points then o accumulate a large quantity in between a narrow level and a higher level and then to lose the capacity( mental as well as monetary in some cases) to average at lower levels. Frankly if you start with a small quanity you would always like the stock to do poorly on price front so that you can accumulate more but if you begin with a huge position you tend to get fatigued quite early if the stock doesnt perform. and thanks a lot for being nice to my post as I think that I was bit harsh in my choice for words but at times I tend to get agitated and hence the outbursts
|
Posted By: basant
Date Posted: 28/Aug/2007 at 11:15pm
|
Vivek I made a 6 bagger in Trent in about 3years in which time it outperformed the market and almost all big sensex stocks it had a very good operating profit growth positive cash flow, cash on balance sheet but all it needed was fire in the belly of the promoters. Though I made 6 times I really lost an opportunity in buying the bad stock of that time Pantaloon.
I remember during the 2004 investor conference at Swabhoomi all experts including RD, Nilesh Shah, Gul Tekchandani were bullish on Trent compared to Pantaloon and we all know what happened after that.
I am not saying that cash flows do not matter it does matter but if the management is good and has fire in its belly we can sacrifice short term gains (profits) for longer term targets.
When investing in value stocks management does not matter because it is very little that they can do but for growth companies we have to be with the sector leader and the best management and these two things are easier to spot then a negative cash flow.
-------------
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
|
Posted By: Vivek Sukhani
Date Posted: 28/Aug/2007 at 11:54pm
|
Although I agree with you, but still I would like to stay with companies which show intent to use cash productively in the best interests of shareholders. sure, you may invest in productive assets and the requirement may make free cash flow negative, but the infusion must be only and only for increased profits in the coming years. Basant Sir, there is a big difference between loss making and negative cash flows. Its quite truse that during initial years you need capital and one has to invest in fixed assets but there must be a clear cut strategy when you intend to become cash flow positive. Ultimately we would like the companies to earn for us. I am quite happy with a company which is into a product which has a small market so long as the company manges its position in the markets with adequate profits. We all have made money through different means. Free cash flow gives the company the legroom to become aggressive in its portfolio. The reason why I like Pidilite so much is the way they manage growth. They hardly come up with a disappointing quarter and that is because they have been very very aggressive in acquiring productive assets and using gearing very suitably and increasing it to only increase the RoE. Now, the reason they have been able to do so is because they almost turned debt free a year back and when the opportunity came for becoming very aggressive their balance sheet was strong and clean enough to give them the opportunity to borrow and have a launching pad. Thats why I like Glaxo Consumer ....on an equity of 42 crores they will make a free cash flow of 200 crores. They are already debt free, have adequate investments on hand, have very little working capital needs and hence the only way out for cash utilisation will be increased pay-outs. Now at least I m clear that this company is a steady grower and alhough you cant spot a multibagger with cash flows but you will never lose 50 p.c. in a matter of days/weeks/months with such stocks. I play a very long cycle and hence multibaggers generally tend to make me feel edgy. So, I dont try to spot multibaggers but look at very decent long term plays and even with this approach I have been quite reasonably successful and now I feel making a career in stocks on one's feet is not very difficult provided one has the discipline.
|
Posted By: basant
Date Posted: 28/Aug/2007 at 11:06am
|
Another important thing to consider is that some businesses were listed in 2003 and now becasue of market dynamics for example if we had a Bharti kind of a company now I am sure the private equity guys will gobble it all up and never allow it to come out in the open. Also companies like PRIL were traded in 2003 because the private equity culture was not deep in India, Dish Tv should ideally be with the private equity players because their counterpart Tata Sky with equal losses made a placement to Temasak a few weeks back but because it was with Zee we got the same.
Over the next few years I do not think that stock market investors would be given such companies because now the Private equity guys are there to gobble everything up.
-------------
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
|
Posted By: smartcat
Date Posted: 29/Aug/2007 at 12:19pm
|
Free Cash Flow (FCF) is not the ultimate thing. For me, it's almost a 'nothing thing'. Basically, for a fundamental investor who looks at parameters like P/E, RoE etc, he should probably give FCF a look, but not make any buy or sell decision based on FCF.
Companies like Glaxo Consumer, ITC and Pidilite might be FCF positive, but these are old companies which have had operations for a long time. On the other hand, companies in DTH, retail and Telecom space are relatively new companies, require lots of investments and hence trade at a higher P/E.
FCF positive stocks have already seen the best of its growth phase and is now cruising steadily. The FCF negative pack is in the middle of a growth curve. Most of them will eventually become Free Cash Flow positive.
| Dish Tv should ideally be with the private equity players |
Yeah, only PE players can still smile when a company is showing a net loss equal to that of net sales. The stock market & its investors are not mature enough for a stock like Dish TV.
|
Posted By: xbox
Date Posted: 29/Aug/2007 at 12:25pm
|
Money is not at all a problem for a growth sector. There are many desi/videsi guys saying 'tum muje multi-bagger do mai tumhe credit donga'.
-------------
Don't bet on pig after all bull & bear in circle.
|
Posted By: bihisello
Date Posted: 21/May/2010 at 9:52am
Please see this article:
http://www.articlesphere.com/Article/Investing--Analyzing-EPS/58875
High quality EPS refers to earnings that are a relatively true
representation of what a company actually earns. Increasingly, cash EPS
is being used to evaluate earnings. Also known as operating cash flow
per share, it gives us the net effect of the inflow and outflow of money
in a company's day to day operation. A cash flow statement breaks down
cash flow into operation, investing and financing. A good company will
normally display a growing trend of higher cash EPS against EPS.
|
Is it mostly correct article? If yes, then why more sites don't give cash EPS instead of EPS?
|
Posted By: basant
Date Posted: 22/May/2010 at 12:42pm
A very god and precise writeup.
-------------
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
|
Posted By: LearningToFly
Date Posted: 04/Jul/2010 at 1:23am
|
BasantJi and experts,
I am going through the valuation model by few authors and got confused with the cashflow from operations concept.
Few authors mention Operating cashflow as EBIT + Depreciation - Tax. This is fine. However, when you look at the cashflow statement of companies, they generally use EBIT + Depreciation - Tax - Change in net working capital to arrive at cashflow from operation.
Isn't cashflow from operation and operating cashflow same thing?
-------------
Success... at all cost.
|
Posted By: basant
Date Posted: 04/Jul/2010 at 6:11am
No, they are two different things.
-------------
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
|
Posted By: LearningToFly
Date Posted: 05/Jul/2010 at 12:33pm
Thank you Basant jee.
-------------
Success... at all cost.
|
Posted By: mayekar
Date Posted: 25/Jan/2011 at 2:32pm
FCF whether through equity or firm valutaions makes too many assumptions.
While valuing using FCF , you give one estimate of growth through reinvestment & capex.This is a very plain vanilla method.
It is best to use FCF methods to get a rough idea of where the company can head to
|
Posted By: excel_monkey
Date Posted: 12/Feb/2011 at 10:57pm
the market is currently very much focused on the current free cash flows
all companies having good FCF have done well
market wants proof
and is completely ignoring the companies which have good business and would do well going forward
I think the next round of multibaggers could come from the companies which would generate healthy future free cash flows (not necessary good FCF currently)
|
Posted By: Hrishi
Date Posted: 10/Nov/2011 at 12:06pm
Any names or a sectors you can name for study?
Originally posted by excel_monkey
the market is currently very much focused on the current free cash flows
all companies having good FCF have done well
market wants proof
and is completely ignoring the companies which have good business and would do well going forward
I think the next round of multibaggers could come from the companies which would generate healthy future free cash flows (not necessary good FCF currently) |
|
Posted By: excel_monkey
Date Posted: 10/Nov/2011 at 4:36am
Originally posted by Hrishi
Any names or a sectors you can name for study?
Originally posted by excel_monkey
the market is currently very much focused on the current free cash flows
all companies having good FCF have done well
market wants proof
and is completely ignoring the companies which have good business and would do well going forward
I think the next round of multibaggers could come from the companies which would generate healthy future free cash flows (not necessary good FCF currently) |
|
There are many
look at pharmaceutical companies who have invested a lot in building plants and on registrations and are now going to launch their products
strides and orchid would be good examples
-------------
I have a vested interest in the stocks I discuss, therefore I would request you to kindly consider my comments with a pinch of salt and do your own due diligence
|
|