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Home Questions FCF vs Tangable Shareholder Equity trend

FCF vs Tangable Shareholder Equity trend
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10:21 am
November 10, 2009


Fredro

Member

posts 8
3

Thanks for your answer, I understand what you mean. I was more curious on the cases where you have rising FCF but lowering Tangible Equity or visa-versa.

For instance this is the case With HPQ. I looked at the calculation and I guess because of the rise in "Goodwill", it brought the equity to a negative. Meanwhile FCF has been a rising trend for HPQ.  

4:50 am
November 6, 2009


Jae Jun

Admin

posts 1336
2

If TCE is decreasing then you've got an issue where the company is mismanaging. Since TCE is an indicator of solvency if TCE goes down, you know the company is losing cash, inventory and probably isn't receiving payment from accounts receivables.

Correct trends: Shareholders equity and fcf should both go up

Bad trends: both go down. Make sure you read the footnotes in the annual reports.

It's a crude answer but none the less, it's the only example tat will work.

8:27 am
November 5, 2009


Fredro

Member

posts 8
1

I understand that we want to see rising or stable Free Cash Flow in a business.

A rising shareholder equity would be good also in case the company would have to liquidate correct?

What if there is a rising FCF but lowering TCE?

What are the correct trends to look for when using this graph for finding a good company?

What are the bad trends?

Thanks!
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