Oct 14, 2022Liked by The Rational Walk

Hi Rational Walk,

Thank you for the great profile.

Free cash flow for fiscal year 2022 is negative, yet John Neff, one of Chuck Akre's successors, wrote in an article that FCF per share grew 47%. https://www.akrecapital.com/why-compounding-is-so-difficult/

I was trying to figure out how he calculated this but to no avail. Math is not my strong suit anyway.

Do you have any idea how Akre Capital arrived at this 47% increase in FCF for FY 2022?

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Oct 14, 2022·edited Oct 14, 2022Author

I do not know what his specific calculation is, but FCF for CarMax has to be adjusted due to the fact that changes in auto loan receivables are presented in cash flows from operations whereas the non-recourse notes payable which fund those receivables are presented in cash flows from financing activities. I describe this in the article (Balance Sheet and Capital Allocation section).

However even making this adjustment, FCF is negative for FY2022 (ended on 2/28/22) because inventory rose significantly during the fiscal year. The first six months of FY23 had positive FCF. I cannot attach an image here in the comments but I uploaded a screen shot here:


Since there is no standard definition of FCF, perhaps he made other adjustments? Not sure if he can be contacted to clarify.

Hope this helps.

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