Hi, please can someone explain to me what this number is telling us FREE CASH FLOW is a higher number good, how is it calculated??! I know cash flow is immensely important but I’m struggling to grasp some of the concepts.
My understanding is free cash flow is operating cash flow minus CAPEX.
Thanks for any help.
Yeah you’re right at what it is. It’s basically showing what cash is left over after all the essentials are paid. Kind of like what it’s like to have disposable income in your own budget. In dividend paying companies, most of this will be paid as dividends, in growth companies this will be used for R&D etc. If there’s more of it it just shows they’re pretty strong cash wise, and should be able to cover they’re expenses quite well. I wouldn’t look into it too much, the ratios will tell you quite a bit about their cash position
So for examples the current ratio for Imperial Brands is 0.9 which is worrying. If it is less than 1 it means that they have more liabilities than assets, ideally this would be around 2, however this can vary between industries. If you’re concerned it would be helpful to look for a multi-year table to see if it’s been slowly getting worse over time, that would be an indicator of an illiquid business
Thank you cavan, what does the 900 number mean? 900 what?
ÂŁ952M so almost ÂŁ1B.
If you’re looking at this company for their dividend I would stay clear. Although their yield is huge, so is their payout ratio. At almost 200% a huge cut is due to at least 1/3 of what it’s at right now, much better opportunities elsewhere. If you have a reason to like the stock then go for it, from my stance I don’t see it as very attractive
All the best
