Blue Chips Free Cash Flow Comparison

Please read the disclaimer at the bottom of my blog if you wish to continue with the contents below.

Collated using Shareinvestor

Free cash flow is an useful and important valuation metric to know. Free cash flow enables the company to seek out more opportunities to enhance shareholders' value. It is computed by using the company's operating cash flow minus its capital expenditure. It is more reliable than operating cash flow, because it filters out the non cash items. The ability to generate a large positive net cash for the full year, is usually a sign of strength. However do note that negative free cash flow may not always be bad. A company may be using the money for big investments and if it pays off, more value for its shareholders will be unlocked.

Another valuation metric you can derive from free cash flow is Price to Free Cash Flow(Price to FCF in short). It is computed by using market price of a stock divided by its free cash flow. It gives you another medium to gauge a company's value relative to its peers. The higher the Price to FCF of a stock, the more expensive it deems to be, but not all the time. Capital intensive companies tend to have higher Price to FCF. 

The table above is screened for blue chips with positive free cash flow and price to FCF for the latest full financial year. Starting from the blue chip with the largest free cash flow in descending order. 

Notice the only bank in the table is DBS. Which means the other banks(UOB & OCBC) have negative free cash flow and therefore not included. The free cash flow value gives you a rough idea of how much net free cash is generated for a full financial year. The Price to FCF metric tells us how expensive it is priced compared to its peers. So next time you read a company's balance sheet, do make use of these two valuation metric.