Estimating Sustainable Free Cash Flow

Once we understand the business and where we think it’s going, we’ll estimate the sustainable free cash flow the company can generate – net income, plus depreciation and amortization, minus maintenance capital spending. Depending on the growth potential, defensibility and profitability of the business, we’ll put a 10 14x multiple on that free cash flow to arrive at a target price. At a minimum, we want to expect to make at least 50% over the next two years.