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Anand Chokkavelu (TMFBomb) writes a nice column about Ford (F) here:

My response:

Anand –

If you look at the total cost of ownership, F sells for 24x free cash flow, per my trusty Old School Value spreadsheet (an excellent tool, btw).

In my experience, buying at these elevated multiples leads to frowny-face performance.

In contrast, Apple sells for just 10x FCF, adjusted for cash ($82 billion) and debt (none).

A couple of points about enterprise value.

First, if you use EV, then subtract from FCF the after-tax interest/investment income (nil in AAPL's case) and add AT interest expense. You make these adjustments because in a cash-free, debt-free balance sheet (the theory behind EV), this income/expense disappears.

Second, since AAPL has $54 billion of its cash and marketable securities overseas, I deducted from its $82 billion cash hoard a hypothetical $20 billion for taxes, which is tax liability if this money is repatriated to Cupertino and then distributed via a super-dividend to stockholders.

Your comments on the quality of Mulally’s stewardship are excellent. Thanks.

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