Yahoo Finance Fiat Chrysler Automobiles NV (BIT:FCA): Exploring Free Cash Flows
Fiat Chrysler Automobiles NV (BIT:FCA) 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. This difference directly flows down to how much the stock is worth. Operating in the automobile manufacturers industry, FCA is currently valued at €22.41b. I will take you through FCA’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.
See our latest analysis for Fiat Chrysler Automobiles
What is free cash flow?
Free cash flow (FCF) is the amount of cash Fiat Chrysler Automobiles 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 Fiat Chrysler Automobiles’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
Although, Fiat Chrysler Automobiles generate sufficient cash from its operational activities, its FCF yield of 7.78% is roughly in-line with the broader market’s high single-digit yield. This means investors are being compensated at the same level as they would be if they just held the well-diversified market index.
Is Fiat Chrysler Automobiles’s yield sustainable?
Does FCA’s future look brighter in terms of its ability to generate higher operating cash flows? This can be estimated by examining the trend of the company’s operating cash flow moving forward. In the next few years, the company is expected to grow its cash from operations at a double-digit rate of 17.0%, ramping up from its current levels of €11.05b to €12.93b in three years’ time. Although this seems impressive, breaking down into year-on-year growth rates, FCA’s operating cash flow growth is expected to decline from a rate of 8.7% in the upcoming year, to 7.6% by the end of the third year. However the overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.
Next Steps:
Fiat Chrysler Automobiles is compensating investors at a cash yield similar to the wider market portfolio. But, in saying this, investors are taking on more risk by buying one single stock as opposed to a diversified market portfolio, but they are being compensated at the same level. Not the best deal! 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 Fiat Chrysler Automobiles to get a better picture of the company by looking at:
Valuation: What is FCA 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 FCA 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 Fiat Chrysler Automobiles’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.
