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Peter George Psaras, has been investing for over 40 years and has expertise in the following: 1) Quantitative Analysis 2) Qualitative Analysis 3) Macro Economic Analysis 4) Technical Analysis 5) Stock Market History He is the CEO at Conservative Equity Investment Advisors, a registered... More
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  • Apple: My Best Retail Pick

    When my fellow contributors, here on Seeking Alpha, write their articles about Apple (NASDAQ:AAPL), most tend to concentrate on the company's product offerings, such as the iPhone, iPad or its Mac computers. In writing this article, I plan to concentrate on a much overlooked side of Apple's business and that is its retail operations. The reason I am doing so is because Apple is one of the few major product manufacturers in history to have also created a very successful retail operation.

    Apple's entrance into the brick and mortar retail space began on May 15, 2001 when the company announced that it would open 25 stores in 2001. Then just four days after that announcement, it simultaneously opened its first two stores, on the same day, in Tysons Corner in McLean, Virginia, and the Glendale Galleria in Glendale, California. About five months prior, Apple was already planning a major move into the E-commerce space when it launched its iTunes Software on January 9, 2001 and laid the foundation for its iTunes Music Store, which it launched on April 28, 2003. By the time Apple launched its App store in 2008, its iTunes Music Store had surpassed Wal-Mart (NYSE:WMT) to become the number one music retailer in the US. Apple celebrated this fact by releasing the following statement at the time "With over 50 million customers, iTunes has sold over four billion songs and features the world's largest music catalog of over six million songs." . And with it most recent launch of iTunes into China on September 30, 2015 Apple has announced that it now has over 800 million iTunes customers. In my opinion it's only a matter of time until the company reaches its one billionth user for iTunes.

    I consider Apple's retail operations to consist of its E-commerce website, its brick and mortar stores, the iTunes Store, the App Store, the Mac App Store, the iBooks Store, AppleCare, licensing and other services. In his last TV appearance in 2011, Steve Jobs said that "Apple is growing like weeds". He clearly saw the future as here are the most recent Retail Sales results from Apple's latest 10-K Annual Report filing with the SEC.

    1. The iTunes Store generated a total of $10.2 billion in net sales during 2014 compared to $9.3 billion during 2013.
    2. The growth in Retail segment net sales in 2014 was primarily driven by increases in net sales and unit sales of iPhone and Mac, partially offset by declines in net sales and unit sales of iPad and iPod. With an average of 424 and 403 open stores during 2014 and 2013, respectively, average revenue per store increased to $50.6 million in 2014 with Net Sales of $21.46 Billion.
    3. Including revenue from the iTunes Store, the App Store, the Mac App Store, the iBooks Store, AppleCare, licensing and other services = $18.063 billion

    As you can clearly see Apple retail operations clearly exploded since Steve Jobs first introduced the store concept in 2001, where he also first introduced the Genius Bar concept for the first time.

    Analyzing retailers has always been a complicated operation and from much experience in doing so, I always found that the best way to analyze any retailer is to do so by using Philip A. Fisher's "15 Points", which Mr. Fisher introduced in his book "Common Stocks and Uncommon Profits". Just as Benjamin Graham is widely considered to be the Father of Quantitative Analysis, Philip A. Fisher, in his own right, is considered to be the father of Qualitative Analysis. Qualitative Analysis for those who do not know is the art of analyzing a company based on the quality of its operations, quality of management and finally by the level of superior performance over time as measured by consistency of operations.

    The most important point in Fisher's work besides consistency, was in getting "The Story" right, while at the same time not overpaying for what one may envision as a very promising future. Many investors make the mistake of buying shares of a company that makes a product or provides a service that they believe to be a game changer (get emotional about) and automatically assume that if they just buy shares of that company (no matter what the price), that they will eventually get rich. In some rare cases that has happened, but unfortunately for most it does not. Many have high hope's for company's like Tesla (NASDAQ:TSLA) for example, but its current numbers do not back up "The Story".

    The Fisher "15 Point" analysis is a way to take emotion out of one's analysis as Mr. Fisher's methodology objectively analyzes a company's operations looking for consistency over time on Main Street and not just for one year or even worse one quarter. It also forces the analyst to examine the financial statements of the firm and make sure one is not overpaying for the company's potential growth prospects. Most of you may feel that since you are not Analysts that doing such an analysis is way beyond your paygrade, but as I do the analysis that follows you will see that all you need to do is use logic and common sense.

    Let us now begin our Fisher "15 Point" analysis of Apple.

    1) Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years?

    Apple creates its product and services to all run on what could be called the Apple "eco-system". Besides being works of art in design and very appealing to the eye and touch, each of its products, along with its services are also very user friendly and once purchased tend to become an essential part of one's life, which most Apple customers cannot live without. The reason for this is that the eco-system links all of Apple's products and services into one place, where for example you can purchase and store your music and then transfer it among all your devices. On top of that Apple is constantly innovating each product and thus continually causes its customer base to want the next upgrade. Therefore we have constant demand, but this demand is universal and worldwide as customers in China have a similar addiction to their iPhone, for example, as someone in Canada or Singapore would. As Apple further expands its operations globally, its potential customer base is rather unlimited because of the power of Apple's eco-system.

    2) Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?

    With Apple having about $200 billion in cash and cash equivalents on its balance sheet, expanding its store operations costs Apple pennies on the dollar in relation to total sales and is thus a no-brainer in my opinion. Fortunately for us management is very determined to do so as Apple now has anywhere from 424 to 437 stores now open and surely has the determination to continue opening more stores in Asia for example. While expanding store operations, management is also just as determined to stock those retail stores with innovative products and drive even more customers to its stores.


    (click to enlarge)

    3) How effective are the company's research and development efforts in relation to its size?

    Obviously with the massive amount of free cash flow that the company generates and its massive war chest of cash and cash equivalents, Apple's R&D budget is rather conservative, simply because its retail operations concept is rather running as smoothly as it can and the company in my opinion does not need to change the concept, especially when you see results like these:

    Here is what the company said about its R&D strategy.

    "The Company continues to believe that focused investments in R&D are critical to its future growth and competitive position in the marketplace and are directly related to timely development of new and enhanced products that are central to the Company's core business strategy,"

    Obviously "If it ain't broke, don't fix it"

    4) Does the company have an above-average sales organization?

    The key identifier of an above average sales organization is not only how a company's operations perform in good times, but in how it performs in bad or difficult times. Obviously China has experienced a slowdown over the last year, but by looking at the chart below one can only conclude that Apple not only has an above-average sales organization, but rather has an elite one.

    (click to enlarge)

    5) Does the company have a worthwhile profit margin?

    Because Apple does not do much in the way of wholesale discounts to stores like Best Buy (NYSE:BBY) or Wal-Mart it is able to maintain some of the best profit margins for its retail operations. Stores like Best Buy and Wal-Mart thus are forced to offer Apple's products as "Walk-In" items to draw traffic to each store. Thus the price you pay at your local Apple Store differs very little from what you find at other retailers that stock its products. This is very unique in the retail industry.

    6) What is the company doing to maintain or improve profit margins?

    One of the key roles that Tim Cook had prior to becoming CEO was to be in charge of overseeing Apple's product production, so having the CEO also be an expert in production really helps. Besides that fact, Apple also operates through "Economies of Scale" where it is able to reduce its cost per unit due exclusively to the increased volumes that it generates. In other words Apple can get a volume discount in the same way that you as a consumer can get when you shop at a Sam's Club or Costco (NASDAQ:COST), because you are buying in bulk. But if one wants to see just how profitable Apple is compared to its competitor's, then just look at the following chart.

    (click to enlarge)

    7) Does the company have outstanding labor and personnel relations?

    Employee relations at retailers are always a difficult area to gauge, but for full time employees at Apple retail operations, benefits include:

    1. Medical and Dental Coverage.
    2. Special therapy coverage for those suffering from hard times.
    3. Stock buying program where retail employees can get a 15% discount on any Apple shares they buy.
    4. First on line for new product launches.
    5. Wear whatever they want to work as long as the Apple T-Shirt and nametag are worn while working.

    8) Does the company have outstanding executive relations?

    When it comes to executive relations between CEO Tim Cook and Senior Vice President of Retail and Online Operations Angela Ahrendts, things could not be better as in 2014 she earned total compensation of $83 million and was the highest paid female executive in the US.

    Ahrendts told Fortune's Adam Lashinsky, recalling her first meeting with Cook. "I did not expect to be moved by the man, and I left and I thought, 'Ohhhhh! My life was perfect, Aaargh, why, why, why?"

    "[nothing will] take him off of always doing the right thing. Not just for Apple, but for Apple's people, for communities, for countries. The world needs more leaders like Tim."

    9) Does the company have depth to its management?

    Apple has incredible depth to management with CEO Tim Cook and his team of executives, but since this article is about Apple's Retail and Online Operations we need to concentrate on Angela Ahrentds, who Tim Cook swayed to come over to Apple from Burberry Group PLC (OTCPK:BURBY), where she was the firms highly successful CEO from 2006-2014. Here is a wonderful link to a video that explains a little about who she is and what she is doing for Apple, such as having successfully integrated the retail and online stores for the first time in the company's history.

    10) How good are the company's cost analysis and accounting controls?

    This is the point where Philip A. Fisher used to put his quantitative analyst hat on and ran through company's financial statements to look for consistency over the years. He did this by analyzing a company's income and cash flow statements as well as its balance sheets. Since I analyze a lot of companies each year and in order to save myself a lot of time, I spent a couple of decades designing a computer algorithm to assist me in my quantitative analysis. I officially completed and launched this algorithm on May 1, 2015, which I named Friedrich. Friedrich basically does 2500 calculations on ten years of financial statements, for each company under analysis and then organizes the results into the 30+ original ratios that I created over the years. As a result, in less than one minute, I am able to create the following Friedrich Data File for Apple (or any non-financial stock):

    (click to enlarge)

    Basically my work is based on free cash flow and what you see above is basically 30+ different ways of analyzing a company and doing so in a highly efficient verifiable manner that is also lightning fast. Friedrich basically does all my quantitative analysis for me and thus gives me the time to research the qualitative aspects, similar to what I am presenting here in this article. To better understand the table above as well as view the ideal parameters to look for in each of my ratios, please go to the Legend Page (print it out) and for those of you who want a more detailed introduction on how Friedrich works and how you can use him in your own analysis of stocks, please go HERE.

    In this analysis what we are looking for is consistency in the results year on year (for a decade) because as an investor, I do not like surprises. Thus if a company performs well over a ten year period under analysis, then obviously its cost controls and accounting controls are excellent.

    In the Friedrich table above it must be noted that all the results are GAAP results or "as reported" and are not "Pro Forma" or adjusted for one time charges and other adjustments that are designed to make a company's results look better than what they are. Because Apple's results are so superior in quality, the company excels even without any adjustments. For example using my FROIC Ratio = Free Cash Flow Return on Total Invested Capital we have Apple's results coming in above 20% for the last 8 years, which is excellent. What FROIC basically tells us how much free cash flow the company generates for every $1 of invested capital (long term debt + shareholders equity) it employs. So Apple in the most recent "trailing twelve months" data returned 31 cents in free cash flow for every $1 the company invested on Main Street.

    Friedrich is mostly based on the power of free cash flow in the investment process, which I verified by writing a proof after analyzing the Dow Jones Industrial Average (NYSEARCA:DIA) from 1950-2009, which you can view by going HERE.

    Since all companies are treated on an equal footing by Friedrich, here are two of the best pure retail operations that Friedrich has found for us, in which we can compare Apple in juxtaposition and see with our own eye's just how powerful Apple really is.


    (click to enlarge)


    (click to enlarge)

    All three companies have unique retail operations and are all extremely profitable operations, as you can clearly see by checking each company's FROIC results. Each also operates mainly through organic growth, instead of buying out the competition and trying to grow operations that way. In an era of Federal Reserve inspired zero interest rates, it is refreshing to see three companies that grow organically without having to submit to the easy fix of borrowing hand over fist, just because such an option is available.

    11) Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company will be in relation to its competition?

    Apple is run on a culture that was built by the genius Steve Jobs. To give you just one example of Steve Jobs' genius, he saw early on that Music was something that everyone on the planet loves, but at the time there was no way for people to enjoy all their music anytime they wanted, no matter where they were (home, beach, at the gym, etc..) and he also noticed that even the world's largest record stores could not even hold 20% of all the music that had been previously recorded. So he had his team develop iTunes and from there created the iPod to store 1000 or more songs, where people could then listen to those songs anywhere they wanted. From there his team developed the iTunes Music Store and as a result not only could you buy songs for 99 cents each or whole albums if one wanted. It also did wonders for the music industry as it also allowed record labels to sell the 80% of the inventory that they had on file, that Record stores could not hold, as it was physically impossible to do so. By creating an eco-system Steve Jobs freed his customers and opened up a massive database of music for sale, while at the same time destroyed services like Napster that threatened to destroy the music industry. That is just one example of why innovation is built into the culture at Apple and thus makes it a unique company.

    12) Does the company have a short-range or long-range outlook in regard to profits?

    Steve Jobs used to operate with a three year outlook for new product concepts going forward and at most would go out five years. He did so, because in the technology field innovation moves so quickly that to stay ahead of the curve the outlook had to remain 3-5 years. As an organization Apple has barely scratched the surface as to its potential, even though they have grown to be one of the largest companies on earth. They have barely scratched the surface as citizens of India and China are only now just coming on board as customers by entering the Apple eco-system. With almost 3 billion people in just those two countries alone, the future for Apple indeed looks very bright.

    Apple will most certainly be successful as the secret to its success is that it refuses to bring a product to market unless it can make a certain profit margin on each unit sold. Steve Jobs learned this strategy from observing the mistakes made by Nokia (NYSE:NOK), who was a pioneer in cellphone and smartphone technology and was the king of that industry some seven years before Apple first launched its iPhone. Nokia totally dominated and had the largest market share in its industry. Where Nokia failed (and where Apple succeeded) is that Nokia went for market share instead of profit margins and destroyed its wireless division as a result, finally selling that division to Microsoft (NASDAQ:MSFT) for pennies on the dollar of what that division used to be worth in the year 2000. So Apple will always be profitable, as long as management continues to concentrate on profit per unit sold and not market share. That is the secret to success for all businesses in my opinion, but a model that is rarely practiced.

    13) In the foreseeable future, will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?

    Apple's biggest problem is what to do with all the cash it is generating, so of the 15 points under analysis this is the last one to worry about as an investor.

    14) Does the management talk freely to investors about its affairs when things are going well but "clam up" when troubles or disappointments occur?

    Apple, unlike most firms, does not freely discuss what it is doing with investors except when it launches product presentations and through various select press releases. Apple does not do so as Steve Jobs was very secretive and was not a very trusting soul after getting forced out of Apple in the old days. But Apple does not need to be very public as it is the most widely talked about and covered company in history by the press and bloggers as one can find almost 100 articles written about the company on any given day. When there are problems with its products, Apple management acknowledges them and then goes about quietly to correct those problems immediately, which is all you can ever expect from any company.

    15) Does the company have a management of unquestionable integrity?

    Senior Vice President of Retail and Online Operations Angela Ahrendts, told Fortune (in the article I linked under Fisher point #8 above) the following about CEO Tim Cook.

    "[nothing will] take him off of always doing the right thing. Not just for Apple, but for Apple's people, for communities, for countries. The world needs more leaders like Tim."

    It has been my long experience, that when the CEO operates through honesty and integrity, that the rest of management usually follows suit, simply because in most cases the CEO hired them as Tim Cook did with Angela Ahrendts.


    Well there you have it, a complete Fisher "15 point" qualitative analysis of Apple, along with a complete Friedrich quantitative analysis. Apple is one of my Clients largest holdings and will be so for a long time to come as it is nowhere close to my sell price.

    Going forward I believe Apple is only in the early innings (2-3) of a nine inning game in reference to its future growth prospects, as just the potential customer base in India and China are just daunting. Few product manufacturers can achieve success in opening retail operations, but no product manufacturer has ever achieved the success that Apple has.

    Success in retail is not only measured by how many people visit a company's store, but is also measured by how much money each spends when they get there. I am very happy that Apple management understands that it is very important for the company to make a profit on each sale and not operate like Amazon (NASDAQ:AMZN) , which barely generates a profit at all, because they sell everything at cost, just to increase sales. We saw from the Nokia example above how such a strategy usually ends.

    Each time I go to the mall, I am constantly overwhelmed by the number of customers that I see at my local Apple Store and obviously with Apple generating $4,551 in sales per square foot of retail space, clearly shows that its customer base not only love the experience of shopping at an Apple store, but spend money as well when they visit. That is why Apple is my top retail pick and one of the largest holdings in my client portfolios.

    Nov 29 1:41 PM | Link | 4 Comments
  • Apple: Analyzing It Using Owner Earnings And Free Cash Flow

    On February 27, 1987 Mr. Warren Buffett introduced in the Appendix of Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) 1986 Annual Report section the following:

    "If we think through these questions, we can gain some insights about what may be called "owner earnings." These represent (NYSE:A) reported earnings plus (NYSE:B) depreciation, depletion, amortization, and certain other non-cash charges such as Company N's items (1) and (4) less ( c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume. (If the business requires additional working capital to maintain its competitive position and unit volume, the increment also should be included in (c). However, businesses following the LIFO inventory method usually do not require additional working capital if unit volume does not change.) Our owner-earnings equation does not yield the deceptively precise figures provided by GAAP, since(c) must be a guess - and one sometimes very difficult to make. Despite this problem, we consider the owner earnings figure, not the GAAP figure, to be the relevant item for valuation purposes - both for investors in buying stocks and for managers in buying entire businesses. We agree with Keynes's observation: "I would rather be vaguely right than precisely wrong.""

    In that statement Mr. Buffett also points out that "Our owner-earnings equation" and that "we consider the owner earnings figure, not the GAAP figure, to be the relevant item for valuation purposes - both for investors in buying stocks and for managers in buying entire businesses.", we obviously can only conclude that both Mr. Buffett and his partner Mr. Charlie Munger use this owner earnings equation in selecting stocks and in buying entire businesses.

    Recently I signed up as a subscriber to a very interesting financial website called Old School Value and the reason I did so is because the founder and fellow Seeking Alpha contributor Mr. Jae Jun has created an amazing software program that makes my work as an analyst and investor much easier. I say that because Mr. Jun's software automatically imports 10 years of financial data from a dedicated professional data feed, but unlike other data providers actually crunches the numbers for you using a multitude of ratio's and formula's. All that is great but the main reason I signed up for Old School Value is because it automatically calculates the owner earnings equation that I talked about in my opening paragraph.

    Since the Old School Value Analyzer Software runs on a Microsoft (NASDAQ:MSFT) Excel format, I am also able to incorporate my work into Mr. Jun's software and then just type a ticker into the dashboard and I get the results I want in about 5 seconds automatically calculated for me. Not only that but I can also incorporate my Excel charts into his software and have them produced automatically for me as well.

    My goal in writing for Seeking Alpha has always been to try to teach as many investors as I can how to analyze stocks properly and in teaching about Mr. Buffett's owner earnings ratio I have chosen to analyze Apple Inc. (NASDAQ:AAPL) for everyone as many investors who read Seeking Alpha own it.

    Mr. Jun's OSV Analyzer calculates owner earnings in the following way:

    Owner Earnings =

    Net Income

    + depreciation, amortization

    +/- other non cash charges

    - (NYSE:C) annual maintenance capex (or the full capex)

    +/- changes in working capital

    The owner earnings interpretation above is the best I have seen and is similar to the one I have been using for years. Not only that but Mr. Jun actually details its components and shows where each came from in Mr. Buffett's statement above.

    Before I show you Apple's owner earnings, let me first also define what free cash flow is as we will be comparing Apple's free cash flow to its owner earnings as part of this demonstration.

    The standard free cash flow analysis commonly used today is calculated in this way:

    Free Cash Flow = Cash Flow from Operations - Capital Expenditures

    So now that we have explained how each is calculated let us now analyze Apple Inc.

    Let us first begin by displaying the data for each equation:


    Followed by a chart representing the data above:

    (click to enlarge)

    I always like to view comparative data on a per share basis, so here is a table displaying Apple's diluted shares outstanding for each of the years in question. I always use diluted shares outstanding as it gives me a complete representation of all shares outstanding as the following definition will show.

    Diluted Shares Outstanding = weighted average shares + shares from conversion of convertible preferred shares + shares from conversion of convertible debt + shares issuable from stock options.

    Now that we have Apple's diluted shares outstanding, we can thus calculate the per share data for its free cash flow and owner earnings.

    Followed by a chart representing the data above:

    (click to enlarge)

    Some years ago I did a backtest on the power of free cash flow in the investment process, which you can download by going to the following link towards the middle of my home page named Price to Free Cash Flow Backtest 1950-2009. In that analysis I went back to 1950 and analyzed the Dow Jones Industrial Average (NYSEARCA:DIA) components over 60 years on a price to free cash flow basis and the conclusion I came to was that when an investor bought a stock at 15 times or less its price to free cash flow or owner earnings, that said investor increased her chances of success dramatically. Therefore when looking at stocks to buy I always multiply the per share data by 15 and try to find points of entry below that price point. The following is the price history of Apple vs. its owner earnings and free cash flow per share data multiplied by 15.

    (click to enlarge)

    Followed by the data that was used to create the chart above:

    (click to enlarge)

    Obviously using the system above explains a lot as to why Apple has been such an incredible investment for those who invested in it. Going forward I believe that Apple is still undervalued and thus I own it for my clients.

    The secret to Apple's success comes from the fact that the company makes products that people love to own, but more importantly management understands that the company is also in business to make profits and will only come out with products that have strong profit margins. One of the major downfalls that led to the demise of Nokia (NYSE:NOK), who was a pioneer in smartphones years before the first iPhone came out, was that management dropped the ball as it had an obsession with market share instead of concentrating on profit margins.

    When you add in amazing design with giving the customer what they want or need, Apple can keep margins high and since they operate now through "Economies of Scale", the more product the company sells the cheaper in becomes (per unit sold) to produce and thus management is able to improve profit margins. Market share is good to have, but without strong profit margins, market share cannot be sustained as you don't generate the necessary profits to allow the company to grow. Apple also continues to produce incredible increases in free cash flow and is expected to produce $64.5 billion in free cash flow for 2015 (when one analyzes it from a trailing twelve month perspective).

    Despite the fact that I have been a skeptic for a while, as I could not believe that the company, with a $732 billion market capitalization, could sustain its growth rate and thus felt it had limited upside. I was proven wrong and thus I have repurchased Apple stock as the latest announcement that the company would return $200 billion to shareholders, changed my mind. I now believe that Apple could at a minimum be the first company to hit the $1 trillion market capitalization mark. I will re-evaluate it when it does so, but as for now Apple is a keeper as long as the company continues to concentrate on profit margins.

    Jun 15 1:31 PM | Link | 3 Comments
  • Introducing The Free Flow Ratio

    The following is my Free Flow Ratio defined using Y-Charts titles. It is basically taking what I believe to be the most powerful three ratio's around and combining them to form a more perfect result.

    FREE FLOW = (Free cash flow to equity + Owner's Cash Profits + Free Cash Flow)/3

    For example for Apple (NASDAQ:AAPL) would have a trailing twelve month Free Flow Ratio result in $billions of:

    ( $40.29 + $59.73 +$62.32 )/3 = $54.11 Billion

    Market Capitalization = $745.58 Billion

    Price to Free Flow = 13.77

    Bargain for the:

    Conservative Investor = any result less than 10 but greater than zero.

    Aggressive Investor = any result less than 15 but greater than zero.


    This is a measure of how much cash can be paid to the equity shareholders of the company after all expenses, reinvestment and debt repayment.

    Calculated as: FCFE = Net Income - Net Capital Expenditure - Change in Net Working Capital + New Debt - Debt Repayment

    Read more:


    Owners' Cash Profits (OCP) = Cash Flow from Operations - [Estimate of Maintenance Capital Expenditures]

    or the long version:

    Owners' Cash Profits (OCP) = [Net Income + depreciation & amortization +/- one-time adjustments +/- working capital] - [Estimate of Maintenance Capital Expenditures]

    Read More

    FREE CASH FLOW Definition

    Free cash flow is the amount of cash generated by a business that is available for distribution among its security holders. Security holders include debt holders, equity holders, preferred stock holders, and convertible security holders. Specifically, free cash flow is used to pay dividends, make acquisitions, develop new products, invest in new property, plant and equipment, pay interest expenses, and reduce debt.

    According to many investors, free cash flow is the best indication of a company's ability to generate cash.


    Net Income
    + Depreciation/Amortization + (Interest Expense - Interest Income) * (1 - Tax Rate)
    - Changes in Working Capital
    - Capital expenditure
    = Free Cash Flow

    Note: YCharts uses the formula Free Cash Flow = Net Cash From Operating Activities - Capital Expenditures.

    Read More:


    Formula = Free Flow/Invested Capital

    Apple FFROIC = $54.11/$146.84 =36.84%

    Anything above 20% is Excellent

    Is used to determine how much in free flow does Apple generate for every dollar of Invested Capital it employs.


    Invested Capital is the total cash investment that company stakeholders have invested into the capital. This is inclusive of equity and debt holders of the company.


    Current and Non-Current Portion of Debt + Shareholders Equity + Minority Interests

    Read More =

    Tags: AAPL
    Apr 07 9:44 AM | Link | 2 Comments
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