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Two important questions to ask before you buy Symphony Limited (NSE:SYMPHONY) 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 household appliances industry, SYMPHONY is currently valued at ₹70.38b. I’ve analysed below, the health and outlook of SYMPHONY’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 Symphony
Is Symphony generating enough cash?
Free cash flow (FCF) is the amount of cash Symphony has left after it pays off its expenses, including its net capital expenditures, which is what the company needs to spend each year to maintain or grow its business operations.
I will be analysing Symphony’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
Along with a positive operating cash flow, Symphony also generates a positive free cash flow. However, the yield of 1.18% is not sufficient to compensate for the level of risk investors are taking on. This is because Symphony’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
What’s the cash flow outlook for Symphony?
Does SYMPHONY’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 moving forward. Over the next few years, a doubling in growth of operating cash flows, from current levels of ₹1.07b, is extremely uplifting especially if capital expenditure grows at a lower rate. Furthermore, breaking down growth into a year-on-year basis, SYMPHONY is expected to be able to increase its growth rate consistently, going forward.
Next Steps:
Low free cash flow yield means you are not currently well-compensated for the risk you’re taking on by holding onto Symphony relative to a well-diversified market index. However, the high growth in operating cash flow may change the tides in the future. Now you know to keep cash flows in mind, You should continue to research Symphony to get a better picture of the company by looking at: