Monday, April 20, 2009

No Fog Coffee - Paris

The second No Fog Coffee will be at Starbucks, 13 Rue des Archives on Saturday, May 2 from 3 PM
to 4 PM. I will have the book on the table so you'll know it's moi.
A bientot!

Friday, April 17, 2009

How to Start a New Topic

Unlike the previous Forum, I see all Comments before they are posted (in order to prevent spam and worse). On readers can comment on my posts but cannot make posts on new topics. If you would like to post a new topic, make a "Comment" on any of my posts and put “NEW TOPIC” at the beginning of your Comment. I will initiate the new topic for you with the text of your post and your name.

If you have any questions, please email me at

Thank you.

Thursday, April 16, 2009

100 Companies FCF Worksheet Updated

The 100 Companies FCF Worksheet has been updated with 2008 numbers. Some 9 companies were dropped (due to merger or major restatements)
and 10 companies were added. New companies are Adobe,, Alcon, Darden Restaurants, H.J. Heinz, Jack in the Box, Quality Systems, Raytheon,
Sanofi Aventis and Steak n Shake.
When I added 2008 numbers of companies already in the worksheet, I did not change previous years' numbers to reflect restatements by the companies.

Current Projects

I am working on two projects related to this book:

(1) Adding 2008 historical numbers to the 100 Companies Free Cash Flow Worksheet. This will take some time as I don't want to use the quarterly press releases'
unaudited numbers.

(2) Adding new "modules" to the Free Cash Flow Worksheet that capture, in the form of a checklist and equations, some of the material in Chapter 7 (Six Companies)
and Chapter 8 (CEO and Investor Return). I haven't decided how to disseminate them.

If you have any comments on the above, on the book or on what you'd like to see in the Forum, please either post them here or send me an email (please advise whether or not I
may summarize your comments and post them myself, with or without attribution).

No Fog Coffee - Manhattan - March 4

Please come to the first No Fog Coffee at 11 am on Wednesday, March 4. 2009 at Starbucks, 340 Madison Avenue (44th Street).
I will arrive before 11 to secure a table. A copy of the book will be on the table.
I have rimless glasses and will be wearing an orange + black striped tie and a blue + white striped shirt.
I have been told I look like a blend of Christopher Guest and Jiminy Glick.
Looking forward to meeting you!

Purchases / Maturities of Marketable Securities

A reader has asked why the Free Cash Flow Worksheet does not include purchases/maturities of marketable securities.
This is my reply:

Many companies have purchase/receipt of short term investments.

The FCF Worksheet ignores them. Think of the cash and marketable securities accounts as one account. Changes in the balance of the sum usually do not materially affect investor return.

The FCF Worksheet does not incorporate everything that is in the financial statements. It focuses on the most important events that affect investor return. But don't hesitate to make any modifications if you prefer a different approach.

You could put the net of the purchases/receipts in the Cash Sources section (if the purchases exceed the receipts you would use a minus sign). I don't do that for the same reason I do not put changes in the cash account in the Cash Sources section: I am more concerned with flows into and out of the company that directly affect investor return and I don't want changes in the cash+marketable securities accounts to muddy the waters. You could also argue that including the changes in cash+marketable securities is double-counting in that the changes are already reflected in the net changes of the other accounts.

I hope this is helpful. In the end you have to do it the way you're most comfortable with.

Adding Historical Periods to the FCF Worksheet

Please replace the directions (on page 100) for adding historical periods to the Free Cash Flow Worksheet with the following:

1) Insert new column between the existing column on the farthest right and the column to its left.
2) Paste Column C or I from the downloaded Free Cash Flow Worksheet into the blank column.
3) Change the years in Row 2 to the appropriate years.
4) Copy the formulas in Rows 49, 54-60, 73-74, 77-80, 110 and 132-134 FROM the newly pasted column and paste them INTO the existing column that is directly to the left of the
newly pasted column.

Call Transcripts on Seeking Alpha

On page 85 in the Projecting Free Cash Flow section of Chapter 6, the paragraph dealing with Row 37 refers to as a source of Capex guidance. Here is the link for the Transcripts Center:

After you enter a company’s stock symbol in the box and then choose the transcript you want from a list of transcripts, you will arrive at the transcript.
Look for “Single Page View” right below the words “Call Transcript” in the title at the top of the page. You are now in Single Page View mode – once you have finished reading page 1 you have to click on “Next Page” to go to page 2. By clicking on Single Page View you will change to Multiple Page View where you can move through all the transcript’s pages without clicking.
If you are looking only for management guidance on Capex and/or share repurchases, it is much easier to be in Multiple Page View. Companies that provide guidance often do so in the CFO’s commentary which usually follows the CEO’s opening statement. If the company provides guidance but it is not in the CEO’s or CFO’s opening statements, look in the Q&A. Often analysts will ask for guidance on these and other items. If there is no guidance on Capex or share repurchases, make sure it’s not in the quarterly earnings press release or in a press release/call focused on guidance. If there is no Capex data in any of the guidance provided by the company, what does that tell you?

Declining Revenue Projections

When you do 2009/2010 projections with the Free Cash Flow Worksheet, many of your companies’ Revenue estimates will either show declines from 2008 or reflect much lower growth rates because of the current economic troubles. Please consider the following:

1) Make sure your OCFM projection is realistic. If Revenues are projected to decline, there’s a good chance the OCFM will also decrease.
2) Look closely at the projected ∆ Working Capital number(s). A decline in Revenues may reduce Working Capital, thereby increasing estimated Free Cash Flow per share. But a decline in Working Capital is not a sustainable long term source of investor return, so be careful. The longer your time horizon, the more you may want to consider adjusting the ∆ Working Capital estimate to a smaller negative number.
3) Same for projected declines in Capex. Many companies are cutting back on
Capex given lower consumer spending and prevailing uncertainties. Sooner or later Capex of most of these companies should return to previous levels.

In sum, a swing in the ∆ Working Capital number from a positive number to a projected negative number and a projected decline in Capex may combine to produce a higher than realistic estimated Free Cash Flow per share number.