> free cash flow to firm (FCFF) is a way of looking at a business's cash flow to see what is available for distribution among all the securities holders of a corporate entity. [0]
What do people expect them to do with free cash flow? The point of free cash flow is to get the money back to shareholders. These aren't high-growth industries.
I think what's frustrating for me is that under these circumstances, there will be a lot of individuals and small businesses that will go under because they didn't save enough for a rainy day, but if your big enough, we have to save you.
There is never a reason to save if the government will always bail you out.
If you are forced to save because not saving could mean certain company death, you will save. And make sure you have a two year runway if zero business is happening.
But with the bailouts the companies are rightfully maximizing shareholder value.
The bailout should directly go to displaced workers and supporting them. It'll directly stimulate the economy and correctly punish the company got fucking itself.
What type of question is this?
If the business needs it to sustain operations then it probably isn't free cash flow.
I don't think that makes sense. People talk about 'socialised losses' as if it's the devil's work. I think socialised losses aren't that bad when talking about such unique events. Should companies really be holding on to cash for once in a century events? Imagine a 1950s CEO had been hoarding cash for 70 years. Now imagine how much wealth has been generated, by putting that cash to use, including by paying it out as cash to investors who'll go on to finance new businesses, new jobs, new research etc.
That having been said, while I'm not opposed to socialised losses / bailouts per se, I don't really quite see yet why airlines need bailouts. Their stock valuations rose due to bailouts. Now they drop some due to the crisis. They should be high enough to sell more stock it once bought and raise new capital. In good years you buy the stock back. In bad years you sell stock. What's the problem? Yes investors take losses, it's part of the game. That's why you diversify. If you don't, that's on you.
Not sure how far the US goes, but in the Netherlands all employees have unemployment insurance if they get laid off. And those who don't, get a little over $1k in social security, plus various subsidies on rent, healthcare etc. Companies in trouble can layoff people, and they're taken care of with the insurance premiums paid out in the good years. The company sells off stock and hunkers down. The government offers cheap lines of credit. Good businesses survive, a few bad ones die off. I don't see why a big bailout is necessary.
I'm totally on board that bailouts are the worst and are inappropriate; but the statistic in the article is an accounting identity. They call the money they send to shareholders FCF, so obviously around 100% of FCF is going to be going to shareholders. If they think there is a potentially better use for the money than going to shareholders it isn't classed as FCF.
The airlines simply made a business decision and bet their company on never needing to sustain a drop in traffic, and they've lost the bet.
If you take whatever you have left after paying for rent, food and insurance, that's your FCF. You can now decide whether you want to save some or all of that, spend it on a new bed, or blow it on coke. The airlines chose what made them/their shareholders happy in the short term and potentially very sad in the long term.
The cash flow is "free" in the sense that you don't owe it to someone else, eg salaries, suppliers, etc. You can save it in a pot if you feel like it.
> Since 2012, Apple has been buying back shares at the extraordinary rate of around $10 billion per quarter.
Shareholders demanded it.
Apple keeps a massive cash hoard in case they want to do a very large strategic acquisition. Airlines would be doing mergers not acquisitions.
IMO it’s entirely appropriate that if a black swan even cripples an industry like air travel for a government to offer low-interest loans until they can start generating cash again.
This is actually significantly more efficient than each company having to put billions of capital on the sidelines “just in case” their entire multi-billion dollar revenue stream goes to $0 for a few months. Capital efficiency is very important to overall economic growth.
This is more effective, quicker and cheaper way of capital alocation. It also eliminates political agenda.