More than 150 companies with market caps above $500 million that claim they have free cash flow—really don't!
That's the word from Ken Hackel, who wrote the just-published tome (and I do mean tome): "Security Valuation and Risk Analysis – Assessing Value in Investment Decision Making."
You should care, because free cash flow is the lifeblood of any company looking to grow.
And free cash flow was touted as a plus quite a bit in the recent round of earnings.
Hackel isn’t impressed. "The term 'free cash flow' has almost gotten to be like the old television show 'What's My Line',” he says. “What free cash flow should be defined as is the maximum amount of cash an entity could distribute to its shareholders without impairing its growth rate. Unfortunately, we've gotten quite a bit away from that."
The free cash flow definition most people use is operating cash flow minus capital spending.
But Hackel says that true free cash flow requires a lot more in the way of adjustments—the kind he believes most analysts simply do not do.
Among companies whose cash flow he believes are flashing red:
Kraft [KFT 31.12 0.04 (+0.13%) ], whose revenues missed estimates and which didn’t include a cash flow statement with its earnings release or discuss it on its earnings call. Still, using available information, Hackel believes he was able to analyze the cash flow and say, “Their backs are really against the wall; they have no room for expansion; they do not have financial flexibility."
Kraft disagrees, saying that over the past few years it has made excellent progress improving free cash flow. "In 2010, there are a number of puts and takes in the equation, due to the acquisition of Cadbury. However, on a more normal run-rate basis, we would expect cash flow to be north of about $3.5 billion.”
Kraft needs cash and it is OK with the government if the powerful take what they need from those with less power.
Near as I can find Hoogwegt (http://www.hoogwegtus.com/) offered the butter Friday and AMPI bought the load.
The seller does not make butter. The buyer does. Is that a real market? I think NOT.
Today, it appears that Dairygold bid the price back up 12 cents. Probably in an effort to protect the value of their inventory. Once again a producer of butter is bidding.
The 1996 study on the National Cheese Exchange repeatedly referred to "trading against interest" as a sign of market failure.
The election is over and it seems there was a clambering for less government. Is there anyone holding their breathe while the government contemplates the dairy trading on the CME?