INFINITY News: What is the secret to turning Capex into cash flow? A detailed explanation of the latest investment strategies! #InvestmentStrategy #CashFlow #Nasdaq100
Video explanation
Investment experts take note! Tips for choosing stock investments based on "money-making power"
This is John! Hello everyone!
Today, I would like to talk about how well a company is using its money and how that relates to our investments. In particular, there is a very important keyword called "free cash flow," which may sound unfamiliar to you. But don't worry! As always, I'll explain it in an easy-to-understand way!
What is "CapEx"?
First, when a company spends money for the future, for example buying new machines or building a factory, it is called "Capital investment" In English, it is sometimes called CapEx.
Imagine a bakery buying a new, bigger oven to bake more delicious bread. This is what capital investment is like. In order for a company to grow, this kind of investment in the future is essential.
So what is "free cash flow (FCF)"?
This brings us to today's main topic!
From the money earned by the company, the company pays for the daily operating expenses (such as the cost of materials and employee salaries). In addition, the money used for the "capital investments" that I mentioned earlier is also deducted. The money that is still left over after that is called "Free Cash Flow (FCF)"It's called this.
It is literally "money that the company can use freely"!
If we use our wallets as an example, it's like the money that is left over after you pay for your living expenses, rent, utilities, savings for the future, and self-investments (like English conversation school fees!). The more "disposable money" you have, the more secure you feel, right? It's exactly the same in a company.
Why is free cash flow important to investors?
Companies with a lot of free cash flow are, exactly,A company with strong cash-generating power" This is a very attractive point for investors.
- Signs of sound management:A company that can generate stable free cash flow is likely to be doing well and growing without relying too much on debt. It's like a family with a stable finances.
- Shareholder returns:If a company has a lot of money to spend, it can distribute it to shareholders as "dividends" or buy back its own shares (this is called a "stock buyback," and it is likely to have the effect of making the stock price go up!). It's a nice gift for shareholders.
- Further growth sources:The funds can be used to grow the company even bigger in the future, such as by trying new business ventures or acquiring other companies. It's just like raising a "golden egg-laying chicken."
In other words, companies with abundant free cash flowThe company has stable management, is shareholder-friendly, and has the potential to grow even further.So it's highly likely!
There is also an ETF that focuses on companies with the "power to create money"!
Recently, I have been focusing on this indicator called "free cash flow" when selecting companies to invest in.ETF (It's like a package of stocks)Has also appeared.
For example, the original article introduced a story about an American company called Pacer ETFs. They focus on whether the "capital expenditures (CapEx)" that companies make for the future are properly converted into "free cash flow," which is money that can be used freely.
Specifically, many American high-tech companies are included.Nasdaq 100 Index (a thermometer that shows the overall market trend)It appears that some ETFs adopt a strategy of selecting companies with particularly abundant free cash flow from among those listed on the index.
This is a way of thinking that aims to evaluate a company's fundamental strength, not just based on how much sales it has or how much profit it is making, but on how much disposable money it can actually generate.Growth stocks (stocks of companies that are likely to grow in the future)This free cash flow is likely to be an important clue in determining the value of a company (this is called "valuation").
Today's points summary
So, to summarise today’s talk…
- Capital investment (CapEx)is money that a company uses for future growth.
- Free Cash Flow (FCF)This is the money that a company can truly use freely after deducting necessary expenses and capital investment costs from the money it earns.
- Companies with high free cash flow are attractive investment candidates because they have stable management and can be expected to return profits to shareholders and continue to grow!
- There are also ETFs that select investment stocks based on free cash flow, so you can use them as a reference for your investments!
John's words
Wow, the flow of money in a company is similar to our personal household finances in some ways! "Free cash flow" is kind of like a "company's secret savings," and I personally think it's a very interesting indicator. From now on, when you look at company news, if you think about it from the perspective of "What's this company's free cash flow like?", you may find a new fun in investing.
This article is based on the following original articles and is summarized from the author's perspective:
Talk Your Book: Turning Capex into Cashflow