bill9300

Is Amazon's Free Cash Flow Overstated?

netmargin, it seems you are not considering the quality of what you are calling FCF.

Think about this, for Amazon’s December Quarter- if AMZN received longer payment term on say $300ml of Accounts Payables, of which they paid in December and instead paid this $300ml in January 2008, this would have increased cash at Dec 31, 2007 by $300ml, and also Total Cash Flow From Operating Activities. Using your definition, FCF would have also increase by $300ml- (Net Income would remain the same).

It is correct that CFFOA would be increased by $300ml, but $300ml should not be considered as a part of FCF, it will be used to pay bills so how can it be considered FCF? Including this $300ml in FCF is wrong, it is not FCF. It is true that Amazon earns interest income from the float, but this $300ml is not FCF.

finance.yahoo.com/q/cf...

To consider FCF in valuing a business, you should use the FCF definition that Warren Buffett uses, he would laugh at the one the company and many analysts use.

“Structural free cash flow [SFCF] -- what Warren Buffett calls "owner's earnings" -- is net income from operations plus depreciation and amortization minus capital expenditures.”

You are confusing Cash Flow with Free Cash Flow