Quote:
Originally Posted by dr.abrahamb
My Ogas, I hail O. Please i need the STATEMENT OF CASH FLOW for 2010 for both NESTLE and OANDO. I have already seen their balance sheets, but i need their cash flow statements. Am working on improving my ability to analyze financial statements.
I also have the following questions to ask my Ogas:
1. Can a company with a negative FREE CASH (OCF - CFI) pay dividends? If so, will they borrow the money to do so? If yes, is it a good or bad sign for such a company? I mean, should it be looked at as a good use of debt?
2. In using Price/Cashflow (as against Price/Earning ratio), when should a descrepancy be viewed as significant?
3. I know how dividend payout ratio(DPR) is calculated, but can FREE CASH/CASH FLOW in the current year be used to fore-tell if a company can meet its previous year DPR? I have not seen this anywhere but am just thinking it might be possible. Am just playing with numbers here, to know if a company will likely pay dividends or not; by just considering the cash flow statement  . |
All these your questions are high level oh. You just dey do analysis, we no dey see wetin you dey do oh. It is not fair at all. Abeg, just let us know whatever you come up with in the the spirit of give and take. You cannot just take without giving.
To answer your plenty questions.
1. From your definition of free cash flow, no. A company with a negative free cash flow should not pay dividends because the company did not generate cash to pay shareholders after sorting out operations and required investments. However, according to IFRS, which is about to become the new standard in Nigeria, the company is free to add dividend payment to either operating cash flow or cash flow from financing. That means if a company decides to include dividend payments into cash flow from operations, it may end up running into negative free cash flow. So a company that decides to pay dividends despite running a negative free cash flow regardless of where the dividend payment is paid will end up paying it by either issuing new shares or borrowing, which of course, is a very daft move.
2. Don't use PE to gauge price to cash flow. It is better to look at the difference between the EBITDA against the cash flow from operations. There are so many things that happen after EBITDA, such as depreciation, which can come in very many different ways. While one company may depreciate cars over 4 years another one may decide to depreciate over 5 years, etc. If cash flow from operations is less than 70% of EBITDA, then you need to be worried about the credit standards of the company. That is not an absolute rule. You need to take a look at the industry standards to arrive at your conclusions.
3. Just as stated in point 1, free cash flow can be used to determine if a company will be able to maintain its payout ratio...
Re: Nestle
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