camden, if you focus on operating cash flow / maintenance capex as a primary measure of cash generating efficiency of the business, how do you propose to measure the cash accretiveness of the business over time?
How do we distinguish cases like:
1) Company generates $10 OCF and has $1 maintenance capex. Company retains $9, and cash on the balance sheet over time grows extremely large.
At some point retained cash of this business distorts equity, and the low ROE would warn us that the company probably needs to send shareholders a dividend, assuming there is no high growth investment alternative. ROE is one way I would see that, but staying in the cash flow statement, how would you measure that?
2) Company generates $10 OCF and has $1 maintenance capex. Company invests all $9 remaining into growth capex, acquisitions. But they don't grow. They keep giving us $10 OCF and $1 maintenance capex repeatedly, for 10 years in a row. (Kind of sounds like a lot of oil and gas companies....)
Working from the cash flow statement, how would you measure the cash accretion capability of this business over time? Such a company has tremendous operating efficiency but doesn't grow its cash over time at all.
That was the intent with my longer earlier post: to find a way to measure cash accretion over time, so you can determine from the cash flow alone how much money the company is make for shareholders that they get to keep.
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