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Hi All,
I enjoyed the conference - and now I have finally decided to jump into the boards (this is my first post - eek!).
I have been looking at the BMW Method Stock Screener Charting Tool that I think was referred to as Sheridan's spreadsheet at the conference. I notice that there is an option to plot FCF per share on the chart - nice, I think, after listening to Vik's Very Convincing presentation. If you are using this view on the charts, what kind of history are you looking for, slow and steady, matching earnings, etc?

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The charting tool gets Free Cash Flow from the statement of cash flows, defined as
FCF = Cash From Operating Activities (Cash Flow) - CapEx.

Flat FCF isn't necessarily bad. What I like to do is look at the history and determine why it is what it is. That helps me determine if I see anything I don't like, and really tells part of a story as far as how the company is using its' cash and what management is thinking.

Usually the cash a company generates will be used to invest in new and existing operations (CapEx), pay dividends, buy back shares, make acquisitions, or pay down debt. If a company is growing organically, especially if at a fast rate then FCF could be flat or even close to zero. This has been the case with WMT - FCF is basically flat for the past 10 years.

If cash flow is growing faster than FCF, this means that CapEx is growing faster than cash flow. Management thinks CapEx is a better use for cash than paying dividends, buying shares, or paying off debt. If you agree, then this is a good thing.

On the other hand if FCF is growing faster than cash flow, then CapEx may be spent more and more on maintenance and less on new operations. Management may be thinking dividends, share buybacks, and paying off debt is a better use for cash. Use the statement of cash flows to see what they're doing and decide if you agree or not.

Hope this helps. There's really no easy answer for this one.
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Hi Genevieve,

While I can't speak for everyone, I can tell you how I use it:

I like to see the relationship of the stock price to the company's earnings. If I see that the stock price has started a trip to the moon, but FCF (or earnings or revenues, if FCF isn't available) is maintaining a more modest trajectory, then this would lead me to consider that the stock price increase is unwarranted. Conversely, if the stock price is dropping, or even doing the "Walmart Shuffle" sideways, while FCF is increasing nicely, this would lead me to think that this company is not being rewarded yet for it's accomplishment. The earnings, or FCF, is like a report card that can be used to judge how objectively the market is responding to a particular stock.

This is why people turn on the "Rolling EPS" indicator on BigCharts, and why Sheridan's spreadsheet is so nice to have.

I just can't say enough how impressed I am with your FIL for taking you guys to the conference. And judging from the fact that you are posting questions and following up with what you learned there, I'd have to say he has a pretty good eye for value. I've always tried to tell my kids that the key to aquiring wealth is to live below your means, so that you can save some money to invest. That's something I knew but was not eloquent enough to put into words until I started hanging out on the TMF boards.

Hope this helps - $$$
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Thanks Darren and $$$! It is helpful to read your tips on incorporating this valuable figure into DD. Darren, it's great that your spreadsheet has the ability to chart this. I am just beginning to learn so I really appreciate your suggestions on what types of information/history I might be looking for to explain the numbers.

$$$ - my FIL rocks! <you're the best, dad!>

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