Cabcharge 1

I have taken into an interest into Cabcharge since the price is low and it has a monopoly in Australia.
Let me see what i will find and my decision on whether to buy the stocks.

The moment i looked into the cashflow statement, i dislike one thing. the free cash flow for the past few years are negative. If the company does not paid increasing the dividend amount, the FCFF would be in positive. from the way i see it, the money inflow from the operations are being using of CAPEX, but the money borrowed from the lender is being used to pay the dividends. this is pretty dangerous.

a mere look in the high ROA or ROE - the company is telling us that the company is a strong one. but this is wrong, when you look into it more closely, the assets are being increased to the heavy borrowing from the lenders and, sadly, quite a lot of money being drained out through the dividend.


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I just had a walk around my neighborhood and the more i think about this company the more i am getting confused. As i mentioned before that the company is either using the money borrowed to expan the business or pay the dividend.

The part i don't get is why they still want to pay such high dividends during this recession.
i made $100 profit, the expenses, expanding business is $100 and so i have $0. so i borrowed money to pay dividend of an amount $40.

Does that make any sense at all??
If i owned the business i wouldn't borrow money to expand the business, i would use the cashflow to expand the business and reduce the dividends.
Is it because the management people are old and so they decided to withdraw the money as much as possible.
plus, the return of invested capital is around 20-30%, isn't it more logical to invest the capital back into the company instead of handing them out to shareholders???


With the high profit margin - this business has the potential to be a good investment.

am i looking it wrong?