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Fraport AG (ETR:FRA) 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. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. I’ve analysed below, the health and outlook of FRA’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.
What is free cash flow?
Free cash flow (FCF) is the amount of cash Fraport 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 Fraport’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
After accounting for capital expenses required to run the business, Fraport is not able to generate positive FCF, leading to a negative FCF yield – not very useful for interpretation!
What’s the cash flow outlook for Fraport?
Can Fraport improve its operating cash production in the future? Let’s take a quick look at the cash flow trend Fraport is expected to deliver over time. In the next few years, the company is expected to grow its cash from operations at a double-digit rate of 22%, ramping up from its current levels of €802m to €976m in three years’ time. Although this seems impressive, breaking down into year-on-year growth rates, FRA's operating cash flow growth is expected to decline from a rate of 10% in the upcoming year, to 3.8% by the end of the third year. However the overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.
Now you know to keep cash flows in mind, You should continue to research Fraport to get a better picture of the company by looking at:
- Valuation: What is FRA worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether FRA is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Fraport’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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.