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Cash Converters International Limited (ASX:CCV) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. I’ve analysed below, the health and outlook of CCV’s cash flow, which will help you understand the stock from a cash standpoint. Cash is an important concept to grasp as an investor, as it directly impacts the value of your shares and the future growth potential of your portfolio.
View our latest analysis for Cash Converters International
Is Cash Converters International generating enough cash?
Cash Converters International’s free cash flow (FCF) is the level of cash flow the business generates from its operational activities, after it reinvests in the company as capital expenditure. This type of expense is needed for Cash Converters International to continue to grow, or at least, maintain its current operations.
There are two methods I will use to evaluate the quality of Cash Converters International’s FCF: firstly, I will measure its FCF yield relative to the market index yield; secondly, I will examine whether its operating cash flow will continue to grow into the future, which will give us a sense of sustainability.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
The business reinvests all its cash profits as well as borrows more money, to maintain and grow the company. This leads to a negative FCF, as well as negative FCF yield, in which case is not a very useful measure.
Does Cash Converters International have a favourable cash flow trend?
Can Cash Converters International improve its operating cash production in the future? Let’s take a quick look at the cash flow trend Cash Converters International is expected to deliver over time. Over the next few years, expected growth for CCV’s operating cash is negative, with operating cash flows expected to decline from its current level of -AU$21.5m. This is unfavourable to its future outlook, especially if capital expenditure heads the opposite direction. Breaking down operating cash growth into a year-on-year basis, it seems like CCV will face a continued decline in growth rates, from 17% next year, to -74% in the following year.
Next Steps:
Now you know to keep cash flows in mind, I recommend you continue to research Cash Converters International to get a better picture of the company by looking at: