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Author: JustMee01 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 3916  
Subject: Re: Growth Rates & Free Cash Flow Date: 3/18/2012 12:08 PM
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Wadd,

A) Long term growth estimates can be obtained from Yahoo Finance.

Go to quote.yahoo.com

Put your ticker symbol into the "Get Quotes" box and hit enter.

On the left you'll see a pane that has a series of hyperlinks. Down toward the bottom in a subsection entitled "Analyst Coverage" is a set of links with analyst estimates and opinions. Hit the hyperlink "Analyst estimates".

That opens a table. On the last subsection of the table will be all the consensus growth estimates.

They're analyst averages. You can also get them individual companies on occasion.

Here's Aflac's page, so you know what you're looking for:

http://finance.yahoo.com/q/ae?s=AFL+Analyst+Estimates

As a caveat, you'll note that analysts predict a 10.5% 5 year annual growth rate for Aflac. Aflac's own actual guidance is nothing like that. They're forecasting a flattish year, followed by a return to decent near double digit growth the following year, and no guidance after that. Analysts fill in the blanks, sometimes optimistically, sometimes pessimistically. The average is presumably a best guess...

B) Free cash flow is the cash that a company takes in an operating period. GAAP accounting makes certain non-cash charges for wear and tear of equipment (depreciation) and distribution of past costs over longer time-frames (amortization). Free cash flow adds these non-cash charges back in. Capital expenditures are usually then subtracted from that number. This gives the actual cash that a company is generating from its operating business.

FCF = Earnings + D&A - CapEx

This is free cash flow to equity, often used for discounted cash flow analyses. There are other free cash flow calculations used as well, you'll see FCFF and OCF referenced on occasion. OCF is an actual GAAP line item, that you can pull off the Cash Flow Statement. It's the official GAAP number that states how much cash the company generated from operating. But, that will not remove capex as in the other cases. The others are non-GAAP and are used by financial analysts to produce valuation models of companies.

There are certain subjective components to the non-GAAP numbers. There are often assumptions on CapEx (are current CapEx numbers abnormal; some people will correct these numbers to averages if a company is trending low conserving cash). Other companies are serial purchasers, growing by buying other companies. Some will push those acquisition costs in as essentially a kind of CapEx. In addition there are judgment calls on one-time cash charges. Often, if they are judged to be unlikely to recur, analysts will remove them from the operating results, correcting earnings for the loss (or gain in some cases; especially a non-cash gain from some balance sheet adjustment). Obviously, things can get complicated. So, a grain or two of salt can be useful...

As far as the ratios are concerned, P/FCF is no different than P/E. It's the cost in dollars for 1 dollar or free cash flow. Just like the P/E is a pricetag for $1 worth of earnings, the P/FCF ratio is the price tag for $1 worth of cash produced by the company in its course of operation. Remember that FCF removes the non-cash GAAP accounting charges from earnings. So, from some peoples' perspective, P/FCF is a better reflection of the actual money that the company is bringing in.

P/FCF ratios can be calculated using the financial statements, or can be obtained from Morningstar.

Go to www.morningstar.com

Enter the symbol in the Quote box and push the button.

A summary page will load. At the top of the frame, over the price of shares and the chart, you'll see a gray menu bar that starts "quote", "chart", "stock analysis", etc...

Hit "valuation" in the middle of that bar. This will open a table with the company's P/E, P/FCF, P/S, etc. valuations. It will also include the company's industry averages, past averages for the company, and the S&P 500 current averages for all the metrics.

Here's Aflac's page so you know what you're looking for:

http://financials.morningstar.com/valuation/price-ratio.html...

Keep in mind that certain analyst-specific assumptions may go into some of these calculations for FCF, so numbers could vary. Nothing is etched in stone for non-GAAP numbers. You can learn to generate them yourself over time. That's preferable, in that you know what's being baked into the cake, so to speak. Another board that gets more traffic where you can ask questions is Investing Beginners:

http://boards.fool.com/investing-beginners-112963.aspx?mid=2...

Peter
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