Free Cash Flow To Sales

  

See: Free Cash Flow.

Figure out the free cash flow number, then just divide it by sales or revenues, more or less.

So if FCF was $100 million and revenues were a billion bucks, then the FCF to Sales ratio is 10%.

Related or Semi-related Video

Finance: What is free cash flow?13 Views

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Finance allah shmoop what is free cash flow Well it's

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the cash a company produces and pretty much after everything

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like whatever dot com has one hundred million bucks in

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pre tax profits A tax bill of thirty milton at

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them seventy million dollars in earnings But they also had

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depreciation on their whatever stamping factory of ten million dollars

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So in fact they generated eighty million dollars in cash

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while having seventy million in earnings And no there were

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no tricky things done in the year to draw down

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inventory volumes to produce a lot more cash or any

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other chick a nunnery here The company also has committed

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to paying a dividend of five milic order or twenty

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mil a year That dividend payment gets included in the

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free cash flow calculation as well So after eighty million

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in cash production from operations the dividend the company pays

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out to shareholders then is taken out of that eighty

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So the free cash number Yep sixty million bucks And

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why does this number even matter Well if you go

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old school on investing and think about what a share

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of a given company buys you in the form of

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earnings and cash or dead on the balance sheet this

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year Next year in the next you can think of

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whatever dot com in terms of having a free cash

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flow yield That is if the company was valued at

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a billion dollars and it had one hundred million dollars

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of cash and one hundred million dollars of dead zero

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net cash or debt And yes this is oh so

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theoretical Well then the company would have a six percent

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free cash flow yield right because it's generating sixty million

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after everything over a bill so that sixty mill is

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the free cash flow But investors get the free cash

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flow in some form most likely justin accumulation of cash

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on the balance sheet and then they also get another

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twenty mill in dividends So add to that twenty million

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dividends and assuming you get no growth or decline while

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investors or buying in it a billion dollar valuation while

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they be getting a total of eight percent of their

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cash back in one form or another each year either

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in just cash produced by the company free castle and

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or that dividend or set another way the sixty million

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free cash flow would presumably then just accumulate on the

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balance sheet Adding value to the company is cash piled

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up or would be used wisely in one form or

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another presumably like to buy back stock or by competitors

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or whatever other whatever's The key idea here is that

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free cash flow is truly free It's not encumbered It

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is an ode for dividends or other big sinking fund

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obligations This year or other things it's free and available

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for the company to do You know whatever they want 00:02:26.105 --> [endTime] with

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