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Two important questions to ask before you buy Public Joint Stock Company Aeroflot – Russian Airlines (MCX:AFLT) is, how it makes money and how it spends its cash. This difference directly flows down to how much the stock is worth. Operating in the industry, AFLT is currently valued at RUруб108b. I’ve analysed below, the health and outlook of AFLT’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.

Check out our latest analysis for Aeroflot – Russian Airlines

Is Aeroflot – Russian Airlines generating enough cash?

Aeroflot – Russian Airlines’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 Aeroflot – Russian Airlines to continue to grow, or at least, maintain its current operations.

There are two methods I will use to evaluate the quality of Aeroflot – Russian Airlines’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

In Aeroflot – Russian Airlines’s case, its strong FCF yield of 17.33% over the past year means it sufficiently compensates investors for the risk they are taking on by investing in the stock, as opposed to merely investing in the well-diversified market index.

Does Aeroflot – Russian Airlines have a favourable cash flow trend?

Can AFLT improve its operating cash production in the future? Let’s take a quick look at the cash flow trend the company is expected to deliver over time. Over the next couple of years, AFLT’s operating cash flows is expected to more than double from the current level of RUруб29b, which is highly optimistic, so long as capital expenditure doesn’t ramp up by even more. Although this seems impressive, breaking down into year-on-year growth rates, AFLT’s operating cash flow growth is expected to decline from a rate of 46% in the upcoming year, to 26% by the end of the third year.