strategic risk with SBB, page-26

Hi zxcv1234,

When you look at the recent quarterly, you will see net operating cash flows of $10.63M for the 6 months to 20 Jun 2014. Free cash flow is simply operating cashflows minus capital expenditure. In this case, we know that capex will be around $3-$4M for this year.if you times the net operating cash flow by 2 (approximate forecast for FY14 cash flow), and then minus capex, you get to $17M or thereabouts (don't have a calculator right now sorry). Divide that by the number of shares oustanding, and you will arrive at some figure, lets say 3.2 cents of free cash flow per share. 3.2 cents of cash flow per share, divided by the current share price is around 25-30%.

This is an attractive way to value stocks, because the lower the price of any stock compared to its free cash flow the better. Free cash flow is the money that gets returned to investors as dividends, the company can pile it up as cash, re-invest it into the business or start a share buyback option. It's also an attractive measure because more often than not, the company will be less likely to need to do a cap raising or take on more debt because the company is generating enough free cash flow to give it more options, greater flexibility, and more bargaining power with lenders such as banks and whatnot.