AndrewInDevon wrote:Measures like free cash flow are backward looking historical accounting figures which ebb and flow with revenues and costs. It’s a measure of flow, not stock.
Dividend cover is by how many times the stock of cash at reporting date can finance current dividend levels. It’s only an indicator of how many times their cash balances can fund dividend payments. It’s a crude and simple measure of financial health, not a definitive guarantee that they will have sufficient cash to fund future dividends.
A working assumption will be that future cashflows (from operations or new borrowings) will be sufficient to fund cap ex, so this has no impact on dividend cover in Greencoats business model (where cash flow is roughly 50% applied to cap ex and 50% paid out as a dividend).
Cash flow is backward looking (like almost everything else)
A working assumption is only an assumption....
Might as well not bother with anything in that case.
PS hereabouts, FCFE was once regarded as the golden measure as cash cannot be lied about (well, usually!) . However, the flaw always was investment expenditure could always be pouring cash down a pit (eg: when supermarkets opened new floor space which ought to yield a return, but then didn't when the started closing them) and secondly after a year or two poor cash flow could be addressed and bought under control - or the opposite - as you suggest.