The cash flows are unlevered cash flows. A) Why would such a porfitable firm have such negative free cash flows? B) What explains the difference between Wal-Mart's cash flows and earnings? C) Is this a good firm to apply discounted cash flow analy
The cash flows are unlevered cash flows. A) Why would such a porfitable firm have such negative free cash flows? B) What explains the difference between Wal-Mart's cash flows and earnings? C) Is this a good firm to apply discounted cash flow analy
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Wal-Mart has been the most successful retailer in history. The panel below reports cash flows and earnings for the time from 1988 to 1996 (in millions od dollars, except per share numbers):
| 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | |
| Cash from operations | 563 | 828 | 968 | 1422 | 1553 | 1540 | 2573 | 3410 | 2993 |
| Cash investment | 627 | 541 | 894 | 1526 | 2150 | 3506 | 4486 | 3792 | 3332 |
| (91) | 287 | 74 | (104) | (597) | (1966) | (1913) | (382) | (339) | |
| Net income | 628 | 837 | 1076 | 1291 | 1608 | 1995 | 2333 | 2681 | 2740 |
| EPS | 0.28 | 0.37 | 0.48 | 0.57 | 0.70 | 0.87 | 1.02 | 1.17 | 1.19 |
The cash flows are unlevered cash flows.
A) Why would such a porfitable firm have such negative free cash flows?
B) What explains the difference between Wal-Mart's cash flows and earnings?
C) Is this a good firm to apply discounted cash flow analysis to?
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