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Free cash flow [electronic resource] : seeing through the accounting fog machine to find great stocks /
George C. Christy.
imprint
Hoboken, N.J. : Wiley, c2009.
description
xxii, 181 p. : ill. ; 24 cm.
ISBN
0470391758 (cloth/website), 9780470391754 (cloth/website)
format(s)
Book
More Details
series title
series title
imprint
Hoboken, N.J. : Wiley, c2009.
isbn
0470391758 (cloth/website)
9780470391754 (cloth/website)
restrictions
Licensed for access by U. of T. users.
general note
Series from jacket.
catalogue key
11927084
 
Includes bibliographical references (p. 168-173) and index.
A Look Inside
About the Author
Author Affiliation
"George Christy has it right-to value a business you must follow the cash. What else counts?" -Bruce Berkowitz, President, Fairholme Funds, Inc.
Excerpts
Flap Copy
For years, GAAP earnings per share was the financial metric of choice for virtually all professional equity investors. However, increasing problems with this approach, combined with a growing appreciation of investment economics, have caused many investors to turn to Free Cash Flow as their primary financial metric.Even with the growing popularity of Free Cash Flow, the lack of detailed information in this field has made it difficult for many investors to integrate Free Cash Flow into their daily investment discipline. That's why George Christy-a financial executive and corporate banker with over thirty years of experience-has created Free Cash Flow: Seeing Through the Accounting Fog Machine to Find Great Stocks.Filled with in-depth insights and practical advice, this reliable resource shows you how analyzing a company's financial performance can put you in a better position to pick winning stocks and improve the overall returns of your portfolio. Throughout the book, Christy explains the differences between Free Cash Flow and GAAP earnings, and describes the advantages of Free Cash Flow. He also takes you step by step through the Free Cash Flow Statementr-which focuses on the primary drivers of investor return: revenues, cash operating margin, and use of capital-and illustrates how each of the four deployments of Free Cash Flow can enhance or diminish shareholder return.In order to put the ideas outlined in perspective, Christy applies the conceptual building blocks of Free Cash Flow and investor return to an actual company-McDonald's-and goes line by line through the downloadable Free Cash Flow Worksheetr that integrates the primary components of share value into an investor return model. Five other restaurant companies are compared to McDonald's, and each other, using both Free Cash Flow and GAAP metrics.Rounding out this detailed discussion of Free Cash Flow, Christy shows you how to assess a CEO's commitment to investor return by analyzing three key sources, and explains how to use the Free Cash Flow Worksheet in your stock search, from finding candidates with screeners to making buy, hold, or sell decisions.Cash is the essence of shareholder value, and with Free Cash Flow as your guide, you'll quickly learn how to use this important metric to find, and profit from, great stocks.The Free Cash Flow Statementr and the Free Cash Flow Worksheetr used in this book and found on its companion Web site (www.wiley.com/go/christy) were specifically developed by the author for this book. Be sure to see the detailed Table of Contents on page IX. Free Cash Flow goes where no other investment book has gone before.
Flap Copy
For years, GAAP earnings per share was the financial metric of choice for virtually all professional equity investors. However, increasing problems with this approach, combined with a growing appreciation of investment economics, have caused many investors to turn to Free Cash Flow as their primary financial metric. Even with the growing popularity of Free Cash Flow, the lack of detailed information in this field has made it difficult for many investors to integrate Free Cash Flow into their daily investment discipline. That's why George Christy-a financial executive and corporate banker with over thirty years of experience-has created Free Cash Flow: Seeing Through the Accounting Fog Machine to Find Great Stocks. Filled with in-depth insights and practical advice, this reliable resource shows you how analyzing a company's financial performance can put you in a better position to pick winning stocks and improve the overall returns of your portfolio. Throughout the book, Christy explains the differences between Free Cash Flow and GAAP earnings, and describes the advantages of Free Cash Flow. He also takes you step by step through the Free Cash Flow Statementr-which focuses on the primary drivers of investor return: revenues, cash operating margin, and use of capital-and illustrates how each of the four deployments of Free Cash Flow can enhance or diminish shareholder return. In order to put the ideas outlined in perspective, Christy applies the conceptual building blocks of Free Cash Flow and investor return to an actual company-McDonald's-and goes line by line through the downloadable Free Cash Flow Worksheetr that integrates the primary components of share value into an investor return model. Five other restaurant companies are compared to McDonald's, and each other, using both Free Cash Flow and GAAP metrics. Rounding out this detailed discussion of Free Cash Flow, Christy shows you how to assess a CEO's commitment to investor return by analyzing three key sources, and explains how to use the Free Cash Flow Worksheet in your stock search, from finding candidates with screeners to making buy, hold, or sell decisions. Cash is the essence of shareholder value, and with Free Cash Flow as your guide, you'll quickly learn how to use this important metric to find, and profit from, great stocks. The Free Cash Flow Statementr and the Free Cash Flow Worksheetr were specifically developed by the author for this book. Be sure to see the detailed Table of Contents on page IX. Free Cash Flow goes where no other investment book has gone before.
Flap Copy
For years, GAAP earnings per share was the financial metric of choice for virtually all professional equity investors. However, increasing problems with this approach, combined with a growing appreciation of investment economics, have caused many investors to turn to Free Cash Flow as their primary financial metric.Even with the growing popularity of Free Cash Flow, the lack of detailed information in this field has made it difficult for many investors to integrate Free Cash Flow into their daily investment discipline. That's why George Christy-a financial executive and corporate banker with over thirty years of experience-has created Free Cash Flow: Seeing Through the Accounting Fog Machine to Find Great Stocks.Filled with in-depth insights and practical advice, this reliable resource shows you how analyzing a company's financial performance can put you in a better position to pick winning stocks and improve the overall returns of your portfolio. Throughout the book, Christy explains the differences between Free Cash Flow and GAAP earnings, and describes the advantages of Free Cash Flow. He also takes you step by step through the Free Cash Flow Statementr-which focuses on the primary drivers of investor return: revenues, cash operating margin, and use of capital-and illustrates how each of the four deployments of Free Cash Flow can enhance or diminish shareholder return.In order to put the ideas outlined in perspective, Christy applies the conceptual building blocks of Free Cash Flow and investor return to an actual company-McDonald's-and goes line by line through the downloadable Free Cash Flow Worksheetr that integrates the primary components of share value into an investor return model. Five other restaurant companies are compared to McDonald's, and each other, using both Free Cash Flow and GAAP metrics.Rounding out this detailed discussion of Free Cash Flow, Christy shows you how to assess a CEO's commitment to investor return by analyzing three key sources, and explains how to use the Free Cash Flow Worksheet in your stock search, from finding candidates with screeners to making buy, hold, or sell decisions.Cash is the essence of shareholder value, and with Free Cash Flow as your guide, you'll quickly learn how to use this important metric to find, and profit from, great stocks.The Free Cash Flow Statementr and the Free Cash Flow Worksheetr were specifically developed by the author for this book. Be sure to see the detailed Table of Contents on page IX. Free Cash Flow goes where no other investment book has gone before.
Summaries
Back Cover Copy
Praise for Free Cash Flow"This book provides the reader with the concepts, the context, and the tools necessary to invest successfully in a global market that has become increasingly challenging for all investors, both institutional and individual. I applaud the author's efforts and recommend this book to all investors seeking shareholder value creation." -From the Preface by William W. Priest, Chief Executive Officer, Epoch Investment Partners, coauthor of Free Cash Flow and Shareholder Yield: New Priorities for the Global Investor"George Christy has it right-to value a business you must follow the cash. What else counts?" -Bruce Berkowitz, President, Fairholme Funds, Inc."Free Cash Flow: Seeing Through the Accounting Fog Machine to Find Great Stocks helps keep the investor focused on what truly matters to value creation-Free Cash Flow." -Charles W. Mulford, Invesco Chair and Professor of Accounting, College of Management, Georgia Institute of Technology, cofounder of Cash Flow Analytics, LLC"GAAP earnings are more theology than science. They are a series of assumptions that lead us to what we 'believe' earnings to be. As George Christy thoroughly explains, Free Cash Flow definitively reflects the true value of a company. After more than a decade of roving market bubbles, it is refreshing to read this work of fundamental analysis pointing to successful investing. I read it as a refresher course to my CFA certification." -Boniface A. Zaino, CFA, Managing Director, Royce & Associates, LLC
Back Cover Copy
Praise for Free Cash Flow "This book provides the reader with the concepts, the context, and the tools necessary to invest successfully in a global market that has become increasingly challenging for all investors, both institutional and individual. I applaud the author's efforts and recommend this book to all investors seeking shareholder value creation."- From the Preface by William W. Priest, Chief Executive Officer, Epoch Investment Partners, coauthor of Free Cash Flow and Shareholder Yield: New Priorities for the Global Investor "George Christy has it right-to value a business you must follow the cash. What else counts?"- Bruce Berkowitz, President, Fairholme Funds, Inc. " Free Cash Flow: Seeing Through the Accounting Fog Machine to Find Great Stocks helps keep the investor focused on what truly matters to value creation-Free Cash Flow."- Charles W. Mulford, Invesco Chair and Professor of Accounting, College of Management, Georgia Institute of Technology, cofounder of Cash Flow Analytics, LLC "GAAP earnings are more theology than science. They are a series of assumptions that lead us to what we 'believe' earnings to be. As George Christy thoroughly explains, Free Cash Flow definitively reflects the true value of a company. After more than a decade of roving market bubbles, it is refreshing to read this work of fundamental analysis pointing to successful investing. I read it as a refresher course to my CFA certification."- Boniface A. Zaino, CFA, Managing Director, Royce & Associates, LLC
Bowker Data Service Summary
This volume explains free cash flow and how to use it to increase investor return. The nine chapters are conversational in tone - a simple dialogue between a senior professional investor and individual investors looking for a more tangible way for them to get their arms around the value of any stock.
Long Description
Praise for Free Cash Flow"This book provides the reader with the concepts, the context, and the tools necessary to invest successfully in a global market that has become increasingly challenging for all investors, both institutional and individual. I applaud the author's efforts and recommend this book to all investors seeking shareholder value creation." -From the Preface by William W. Priest, Chief Executive Officer, Epoch Investment Partners,coauthor of Free Cash Flow and Shareholder Yield: New Priorities for the Global Investor"George Christy has it right-to value a business you must follow the cash. What else counts?" -Bruce Berkowitz, President, Fairholme Funds, Inc. ?"Free Cash Flow: Seeing Through the Accounting Fog Machine to Find Great Stocks helps keep the investor focused on what truly matters to value creation-Free Cash Flow." -Charles W. Mulford, Invesco Chair and Professor of Accounting, College of Management, Georgia Institute of Technology, cofounder of Cash Flow Analytics, LLC"GAAP earnings are more theology than science. They are a series of assumptions that lead us to what we 'believe' earnings to be. As George Christy thoroughly explains, Free Cash Flow definitively reflects the true value of a company. After more than a decade of roving market bubbles, it is refreshing to read this work of fundamental analysis pointing to successful investing. I read it as a refresher course to my CFA certification." -Boniface A. Zaino, CFA, Managing Director, Royce & Associates, LLC
Main Description
The purpose of this book is to explain Free Cash Flow and how to use it to increase investor return. The author explains the differences between Free Cash Flow and GAAP earnings and lays out the disadvantages of GAAP EPS as well as the advantages of Free Cash Flow. After taking the reader step-by-step through the author's Free Cash Flow statement, the book illustrates with formulas how each of the four deployments of Free Cash Flow can enhance or diminish shareholder return. The book applies the conceptual building blocks of Free Cash Flow and investor return to an actual company: McDonald's. The reader is taken line-by-line through the author's investor return spreadsheet model: (1) three years of McDonald's historical financial statements are modeled; (2) a one-year projection of McDonald's Free Cash Flow and investor return is modeled. Five other restaurant companies are compared to McDonald's and each other using both Free Cash Flow and GAAP metrics.
Table of Contents
Forewordp. xv
Prefacep. xix
Investing 101p. 1
Pricep. 1
Free Cash Flowp. 2
Risk and Returnp. 3
The Return Multiplep. 4
Return and Pricep. 4
Debtp. 6
Equityp. 9
Debt versus Equityp. 11
Private Company versus Public Companyp. 12
The Accounting Fog Machinep. 15
GAAP: Competing Theories, Matters of Opinion, Political Compromisesp. 16
GAAP: Accrual Abusep. 17
GAAP: Errors Bred by Complexityp. 17
GAAP'S Gapp. 18
GAAP EPS: An Incomplete Definition of Financial Performancep. 18
GAAP EPS: Investing in an Economic Vacuump. 18
EBITDA is Not a Cash Flow Metricp. 19
The GAAP Cash Flow Statementp. 19
Beware the Balance Sheetp. 20
Liquidityp. 21
Fixed Assets and Depreciationp. 21
Leverage and Debt Servicep. 22
Whose Return on Equity?p. 22
The Notesp. 23
When Do Accruals Meet Cash Flows?p. 23
What is to be Done?p. 24
Free Cash Flowp. 25
Reconciliation of Net Income and Free Cash Flowp. 25
Free Cash Flow versus Net Incomep. 27
A Universal Definition?p. 28
Academic Research and the Discounted Cash Flow Modelp. 29
Barron's Rankingsp. 30
Buy-Side Usersp. 31
Private Equity Firmsp. 31
Warren Who?p. 31
A Vast Media Conspiracy?p. 32
FASB Staff Findingsp. 32
FAS 95: A Cruel Rulep. 33
EPS Misses: The Real Dealp. 33
An Alternative to the Government Numberp. 34
The Free Cash Flow Statementp. 35
Building the Free Cash Flow Statementp. 35
Four Key Questionsp. 40
Revenuesp. 41
Operating Cash Flowp. 43
Working Capitalp. 44
Capexp. 45
Capex: Magnitude and Riskp. 46
Capex and Capitalp. 47
Capex Transferp. 48
Capex Visibilityp. 48
Capex and Investor Returnp. 49
Free Cash Flowp. 49
Free Cash Flow Yieldp. 50
Free Cash Flow Deploymentp. 53
Acquisitionsp. 54
Buybacksp. 56
Dividendsp. 59
Debtp. 60
Projecting Investor Returnp. 61
The Free Cash Flow Worksheetp. 65
Worksheet Featuresp. 66
Entering Historical Datap. 68
Adjustments to GAAP Cash Flowp. 68
Operating Cash Flowp. 71
Capexp. 71
From the Balance Sheetp. 72
The Free Cash Flow Statementp. 73
GAAP Datap. 74
Percentagesp. 75
Per Share Datap. 76
Incremental Data and Company's Reinvestment Returnp. 77
Cash Sources and Deploymentsp. 78
Acquisitionsp. 80
Buybacksp. 80
Dividendsp. 81
Debtp. 82
Operationsp. 82
Projecting Free Cash Flowp. 83
Projecting Cash Sourcesp. 86
Projecting Acquisitionsp. 87
Projecting in Share Value Due to ¿ in the Number of Sharesp. 88
Projecting Investor Return from Dividendsp. 90
Projecting in Share Value Due To ¿ in Debtp. 91
Projecting in Share Value from Operationsp. 94
GAAP Data, Percentages, and Per Share Datap. 94
Incremental Data and Company's Reinvestment Returnp. 95
Investor Return Projectionp. 96
Return Multiplep. 98
Adding Periods to the Worksheetp. 100
Using the Worksheetp. 100
Six Companiesp. 101
Revenuesp. 102
Percentage Change in Revenuesp. 102
Operating Cash Flow Marginp. 103
Capex as a Percentage of Revenuesp. 105
Free Cash Flow Marginp. 106
Free Cash Flow Per Sharep. 107
The Government Numberp. 109
Net Nonworking Capital Itemsp. 109
McDonald'sp. 111
Panera Breadp. 113
Applebee'sp. 114
P.F. Chang's Bistrop. 115
Cheesecake Factoryp. 116
IHOPp. 118
Three Musketeers without New Unit Capexp. 121
Whose Return on Equity?p. 121
Sell-Side Analystsp. 124
Total Returnsp. 125
Take Your Pickp. 125
The CEO and Investor Returnp. 129
The CEO's Letter to Shareholdersp. 129
The Quarterly Earnings Conference Callp. 135
The CEO's Incentive Compensationp. 137
Chapterp. 9
The Nine Stepsp. 145
Diversification for Individual Investorsp. 150
Equity Mutual Fundsp. 151
Free Cash Flow and Bondsp. 152
Free Cash Flow and the Financial Crisis of 2008p. 152
Equationsp. 153
McDonald's Income Statementp. 159
McDonald's Balance Sheetp. 162
McDonald's ROIIC and Weightingp. 164
McDonald's ROIIC Calculationsp. 165
Recommended Readingp. 168
Notesp. 171
Acknowledgmentsp. 174
About the Authorp. 175
About the Websitep. 176
Indexp. 177
Table of Contents provided by Ingram. All Rights Reserved.

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