Quote:
Originally Posted by boswd
zero "Free" cash flow, not zero cash flow. they are not the same.
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"Free cash flow" is a measure of how much cash the business generates, minus capital expenditures. If B&N has zero free cash flow, then any additional spending they need to undertake has to be borrowed. Zero FCF is not good.
The issue the article focuses on is that B&N has $61m on hand in cash and $510m in outstanding debts. It looks like they pay $0.25 per share per quarter, which is currently $14.5m per quarter. If FCF stays at zero, B&N won't have enough cash to pay its dividend, and may not be able to borrow to pay for it either.
Unfortunately it's a Catch-22. If they cut the dividend, they are likely to temporarily lose "value investors" who want a dividend, as well as tick off the investors who are trying to kill off the current management. If they don't, then they need to divert critical resources to pay the dividend.
If they do capture significant revenues at a decent profit from ebooks in the future, this will just be a big pinch at a bad time. If not....