bill9300

Amazon Toying with Vertical Integration

RE: AMZN's Free Cash Flow -they have Very Little
(posted on a message bd)
people have used the wrong formula to compute FCF for AMZN. There are various methods to compute the number depending on the type of enterprise you are dealing with.

If you use the formula from Investopedia Advisor, the link YOU posted earlier in this thread, you would see that there is no increase in FCF
www.investopedia.com/t...
Formula from your link-

Net income
+ Depreciation/Amortizat...
- Change in Working Capital
- Capital Expenditure
----------------------...
= Free Cash Flow
In some cases FCF can be calculated by taking operating cash flow and subtracting capital expenditures, (not meaningful in AMZN’s case, as it ignores cash on hand @12/31/07 that would be used to pay bills- it is not Free Cash, if accounts payables did not increase by $1.2 bn there would have been only a small increase in Cash Flow.
See Balance sheet- finance.yahoo.com/q/bs...
HOW CAN YOU ADD THIS INCREASE OF A/P TO FREE CASH FLOW?? IT’S NOT FREE CASH, IT HAS TO PAID OUT IN THE NEXT QUARTER?????
“Free cash flow, strictly speaking, is the amount of money left over from the operations of a company that is available for distribution owners of the capital employed in the company (stockholders)”.

FCF computation for AMZN using 12/31/07 from-
finance.yahoo.com/q/cf...
(ignoring other smaller input items)
Net Income...................
+Amortization/Deprecia...
-Change in Workng Capital........-832 (a/p, a/r etc)
–Capital Expenditure..............
________________
= Free Cash Flow.....................
There may be other ways to compute FCF, but the above is more accurate (other minor inputs can be added) as the definition of FCF


Article-
Free Cash Flow: Free, But Not Always Easy
by Ben McClure, Contributor - Investopedia Advisor

The best things in life are free, and the same holds true for cash flow. Smart investors love companies that produce plenty of free cash flow (FCF). It signals a company's ability to pay debt, pay dividends, buy back stock and facilitate the growth of business - all important undertakings from an investor's perspective. However, while free cash flow is a great gauge of corporate health, it does have its limits and is not immune to accounting trickery....


...To do it another way, grab the income statement and balance sheet. Start with net income and add back charges for depreciation and amortization. Make an additional adjustment for changes in working capital, which is done by subtracting current liabilities from current assets...


www.investopedia.com/t...