Course 208: What Is Free Cash Flow?
Big Spending and Cash Flow Can Work Together
In this course
1 Introduction
2 What Free Cash Flow Tells You
3 Big Spending and Cash Flow Can Work Together
4 When Spending Doesn't Generate Cash Flow
5 Using Free Cash Flow

Some companies--the really good ones--can spend aggressively and still generate free cash flows. For example, Intel INTC has annual capital spending of $3 billion or so, and its long-term assets are about $12 billion. That spending works out to 25% of its long-term assets, a pretty high figure. But although both Rainforest Cafe and Intel spend vast sums relative to their asset bases, we see a big difference when we look at their respective free cash flows. Intel's earnings from 1997 through 1999 were $6,945 million, $6,068 million, and $7,314 million.The company's free cash flows were $5,507 million, $5,634 million, and $7,932 million. In this case, the two sets of numbers move in tandem. Those positive free cash flows mean Intel has money left over even after its large capital-spending budgets. Intel covers its spending and then some. Rainforest Cafe, by contrast, must turn to investors--people like you and me--to make up the difference. Only by selling new shares to the public or taking out a loan can Rainforest Cafe fund its aggressive spending.

Next: When Spending Doesn't Generate Cash Flow >>


Search
Print Lesson |Feedback
Del.icio.us Del.icio.us | Digg! digg it
Learn how to invest like a pro with Morningstar’s Investment Workbooks (John Wiley & Sons, 2004, 2005), available at online bookstores.
Copyright 2015 Morningstar, Inc. All rights reserved. Please read our Privacy Policy.
If you have questions or comments please contact Morningstar.