Yahoo Finance Should You Care About Fortis Inc’s (TSE:FTS) Cash Levels?
Two important questions to ask before you buy Fortis Inc (TSE:FTS) is, how it makes money and how it spends its cash. 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 FTS’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.
View our latest analysis for Fortis
What is free cash flow?
Free cash flow (FCF) is the amount of cash Fortis 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 Fortis’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
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.
What’s the cash flow outlook for Fortis?
Can Fortis improve its operating cash production in the future? Let’s take a quick look at the cash flow trend Fortis is expected to deliver over time. In the next few years, the company is expected to grow its cash from operations at a low single-digit rate of 2.9%, increasing from its current levels of CA$2.8b to CA$2.9b in three years’ time. Furthermore, breaking down growth into a year on year basis, FTS is able to increase its growth rate each year, from -3.2% in the upcoming year, to 2.3% by the end of the third year. The overall future outlook seems relatively optimistic if FTS can maintain its levels of capital expenditure as well.
Next Steps:
Now you know to keep cash flows in mind, I suggest you continue to research Fortis to get a better picture of the company by looking at:
Valuation: What is FTS 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 FTS 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 Fortis’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 editorial-team@simplywallst.com.
