Two important questions to ask before you buy Indoor Skydive Australia Group Limited (ASX:IDZ) is, how it makes money and how it spends its cash. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. I will take you through IDZ’s cash flow health and the risk-return concept based on the stock’s cash flow yield, using the most recent financial data. This will help you think about the company from a cash perspective, which is a crucial factor to investing. See our latest analysis for Indoor Skydive Australia Group
What is Indoor Skydive Australia Group’s cash yield?
Indoor Skydive Australia Group generates cash through its day-to-day business, which needs to be reinvested into the company in order for it to continue operating. What remains after this expenditure, is known as its free cash flow, or FCF, for short. I will be analysing Indoor Skydive Australia Group’s FCF by looking at its FCF yield and its operating cash flow growth. The yield will tell us whether the stock is generating enough cash to compensate for the risk investors take on by holding a single stock, which I will compare to the market index. The growth will proxy for sustainability levels of this cash generation.
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.
Is IDZ’s yield sustainable?
Does IDZ’s future look brighter in terms of its ability to generate higher operating cash flows? This can be estimated by examining the trend of the company’s operating cash flow going forward. Over the next few years, a doubling in growth of operating cash flows, from current levels of AU$2.15M, is extremely uplifting especially if capital expenditure grows at a lower rate. Furthermore, breaking down growth into a year-on-year basis, IDZ is expected to be able to increase its growth rate consistently, going forward.
Next Steps:
Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. You should continue to research Indoor Skydive Australia Group to get a more holistic view of the company by looking at:
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1. Valuation: What is IDZ worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether IDZ is currently mispriced by the market.
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2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Indoor Skydive Australia Group’s board and the CEO’s back ground.
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3. Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.