Afterpay Touch Group Limited (ASX:APT) 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. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. Today we will examine APT’s ability to generate cash flows, as well as the level of capital expenditure it is expected to incur over the next couple of years, which will result in how much money goes to you. Check out our latest analysis for Afterpay Touch Group
Is APT generating enough cash?APT 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. The two ways to assess whether APT’s FCF is sufficient, is to compare the FCF yield to the market index yield, as well as determine whether the top-line operating cash flows will continue to grow.
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
Although APT generates positive cash flow from its operational activities, 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 APT’s yield sustainable?Can APT improve its operating cash production in the future? Let’s take a quick look at the cash flow trend APT is expected to deliver over time. Next year, a double-digit growth in operating cash of -91.89% is expected. The future seems buoyant if APT can maintain its levels of capital expenditure as well. Below is a table of APT’s operating cash flow in the past year, as well as the anticipated level going forward.
|Operating Cash Flow (OCF)||A$-79 M||A$-6M|
|OCF Growth Year-On-Year||-91.89%|
What this means for you:
Interested in learning more about APT’s fundamentals? To quickly understand whether it is a good investment for you, scroll through our FREE easy-to-understand infographics report. If you’re curious about other attractive investments, explore our list of high-growth and undervalued stocks here.