Two important questions to ask before you buy Rawlplug SA (WSE:RWL) 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, Rawlplug is currently valued at zł287m. I will take you through Rawlplug’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.
What is free cash flow?
Free cash flow (FCF) is the amount of cash Rawlplug 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.
The two ways to assess whether Rawlplug’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
After accounting for capital expenses required to run the business, Rawlplug is not able to generate positive FCF, leading to a negative FCF yield – not very useful for interpretation!
Does Rawlplug have a favourable cash flow trend?Rawlplug’s FCF may be negative today, but is operating cash flows expected to improve in the future? Let’s examine the cash flow trend the company is anticipated to produce over time. In the next couple of years, Rawlplug’s operating cash flows is expected to grow by a double-digit 38%, which is encouraging, should capital expenditure levels maintain at an appropriate level. Below is a table of Rawlplug’s operating cash flow in the past year, as well as the anticipated level going forward.
|Current||+1 year||+2 year|
|Operating Cash Flow (OCF)||zł50m||zł67m||zł69m|
|OCF Growth Year-On-Year||34%||3.1%|
|OCF Growth From Current Year||38%|
Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I suggest you continue to research Rawlplug to get a better picture of the company by looking at:
- Historical Performance: What has RWL’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Rawlplug’s board and the CEO’s back ground.
- 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.