Cashflow.com

2 August 2001
Americas / United States

Investment Strategy
Equity Research
Cash Flow.com
Why Its Important to Focus on Cash
Economics
Update Volume 9
This report outlines a practical framework for analyzing the cash economics
of business models.
Our analysis indicates that knowledge-oriented companies tend to have
superior cash economics than their physical asset oriented counterparts.
Exemplifying this trend, the income statement of companies such as Dell,
Yahoo!, and Amazon.com understate their ability to generate cash.
US Investment Strategy
Michael J. Mauboussin
212 325 3108
michael.mauboussin@csfb.com
Alexander Schay
212 325 4466
alexander.schay@csfb.com
This potential for higher cash flows helps explain for the valuation premiums
that investors observe in knowledge-based sectors
Cash Flow.com
2 August 2001
Executive Summary
Cash is king. In recent years, scores of startup companies have barged into the
consciousness of investors. These companiesepitomized by the dot.com
phenomenonhoped to reshape the corporate landscape. But all companies are
ultimately held to a singular standard: the ability to generate long-term cash flows.
Investors can draw two lessons from the gyrations in technology company
valuations. First, many will try and few will succeed. This pattern has played out
time and time again in the business annals. Second, as corporate landscape
transitions from a reliance on physical to knowledge assets, the pattern of cash
flows is changing. Specifically, companies are increasingly expensing their
investments, while their tangible assets remain relatively modest. As a result,
income statement analysis is misleadinginvestors must follow the cash.
What you see is not what you get. Investors calculate free cash flow by subtracting
investments from a companys cash earnings. Most physical asset intensive
companiescompanies that rely on physical assets for their source of competitive
advantage-have a cash inflow from earnings and a cash outflow from investments
such as working capital and capital spending. Thus, cash earnings for these
companies will typically overstate their free cash flow. For example, Barnes and
Noble generated $225 million in cash earnings for the 12 months ending on January
30, 2001. However, it also invested over $450 million during the period, translating
into negative free cash flow of $225 million. For every $1 in investment, Barnes and
Noble generated $2 in new sales.
What you see is not what you get, part two. Knowledge oriented companieswhich
rely on people as their source of competitive advantageoften have superior cash
economics. Yet they generate cash in a totally different way. Some can generate
cash from their balance sheets through a combination of negative working capital
totals and relatively modest fixed asset investments. This means that cash earnings
for a knowledge company can dramatically understate the companys total free cash
flow. Amazon.com is a case in point: in 2000, a $1 investment supported $10 in new
sales. Some knowledge companies will see their ratio of investment to new sales
diminish.
Heed the balance sheet. Investors anxious to own cash cows have naturally
focused on the income statement. However, our analysis indicates that looking at
the balance sheet of a knowledge company can unveil an important source of cash.
Investors must look at both financial statements, as it is free cash flowthe sum of
a firms cash earnings and investmentsthat drives shareholder value creation. We
believe that understanding these fundamental differences in the cash economics of
business models will become increasingly important as the digital revolution
transforms the world.
Cash Flow.com
2 August 2001
Introduction
On the final exam [for a business valuation course], Id probably take an Internet
company, and [ask], How much is it worth? And anybody that gave me an answer, Id
flunk...
1
Warren Buffett
Some investors claim that we are in a new age where old rules do not apply. We
disagree. Yes, for companies with no earnings, old valuation rules-of-thumb like priceto-earnings ratios have lost their relevance. But the fundamental drivers of value remain
the same. When investors spend their hard-earned cash to buy a piece of a companys
equity, they are buying a share of the companys future cash flows. And whether
investors are purchasing nascent Internet companies or mature manufacturing
companies, the goal is the sameto buy into a stream of cash flows with a current
value greater than the price they paid.
To understand how the market values any company, then, we first need to understand
the cash economics of business modelsa companys propensity to generate or
consume cash. What is obvious is that many knowledge companies are currently
incurring losses as they spend millions in marketing, while their off-line competitors reap
cash earnings. What is less obvious is that these companies invest much less in their
computers and office space than their more traditional peers spend on bricks-andmortar and working capital. We believe that understanding these fundamental
differences in the cash economics of business models will become increasingly
important as the digital revolution transforms the world.
This report is broken into four parts. First, we have outlined a practical framework for
analyzing the cash economics of business models. Second, we have introduced a
graphical way of highlighting differences between business modelsthe cash
economics matrixand apply this framework to compare companies. Third, we
generalized from our case studies to outline a cash economics lifecycle for companies.
Finally, since the market values a companys ability to generate cash, we have used this
cash economics analysis to explain one possible source of the continuing high
valuations of some knowledge companies.
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2 August 2001
Cash Economics of Business Models

There are businesses ... where you just constantly keep pouring [cash] in and pouring it
in, but where no cash ever comes back. ... One of the things that keeps our life
interesting is trying to avoid those and trying to get into the other kind of business that
just drowns you in cash...
2
Charlie Munger
Vice Chairman, Berkshire Hathaway
Earnings growth rates and P/Es may dominate Wall Street banter, but as any small
business owner knows, a companys value stems from its ability to generate cash.
Common sense dictatesand the empirical evidence corroboratesthat the same
3
currency that pays the bills also drives shareholder value.
An investors first step in valuing a company, then, is to assess how much cash a firm
generates or consumes in future years. There are two components to this:
Cash earnings. A company can generate or consume cash from its after-tax
operating profit. We can calculate this figure by subtracting a firms cash taxes from
4
its operating income. Note that a companys cash earnings may be radically
different from accounting metrics such as net income owing to distortions from
noncash accounting entries such as goodwill amortization and financing costs such
as interest expense.
Cash investments. A company can consume or generate cash by investing different

amounts in its on- and off-balance sheet assets. This investment includes both
changes in net working capitalsuch as accounts receivable, which serve as cash
loans extended to finance customer purchasesand in fixed assetssuch as
investments in property, plant and equipment, and any investments in mergers or
5
acquisitions.
This analysis tells us exactly how much cash a company generates or consumes from
these two components. In addition, the sum of these two amounts gives us free cash
flow for that periodthe cash pool available to pay the firms capital providers. This is
critical because the market values a company by discounting its best guess of future
cash flows to the present value at the firms opportunity cost of capitala blended
average of the firms cost of debt and equity. The higher the cash flows, the more
valuable the firm.
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2 August 2001
Exhibit 1: Driver of Cash Earnings and Investments

Volume
Pricing
Expenses
R&D
Leases
Tax Provision
Deferred Taxes
Tax Shield
A/R
Inventories
A/P
Sales
Operating
Margin
Cash
Earnings
Cash
Taxes
Free Cash Flow
Working
Capital
Capital
Expenditures
Cash
Investments
Cash available
for distribution to
all claimholders
Acquisitions/
Divestitures
Source: CSFB analysis.
A companys propensity to generate or consume cash through earnings or investments

determines the nature of its business model. As Exhibit 2 illustrates, companies tend to
fall into one of four categories:
1. Profitable Buildout. Traditionally, successful companies have a cash inflow from
earnings, and a cash outflow from its investments in working capital and bricks-andmortar stores or factories. Companies that fit this profile are in the upper-left
Profitable Buildout quadrant of our diagram.
2. Startups and Value Destroyers. There are two kinds of companies in the lowerleft quadrant, with earnings and investment as outflows. The first type is a Startup
that is both investing in the business and incurring losses as it grows. The second
typea Value Destroyermakes significant investments in negative-return
businesses. Since both of these scenarios necessarily imply a high cash burn-rate,
companies in this quadrant face bankruptcy unless they start generating positive
cash flowor have deep-pocketed owners.
3. Turnarounds and Emerging Capital Efficient Companies. Business models that
are in the lower-right quadrantcompanies with investment as an inflow and
earnings as an outflowtend to be quite uncommon. In one scenario, a struggling
Turnaround company liberates cash tied up in its balance sheet, while incurring
income statement losses. This usually is a temporary phenomenon. A second
scenario involves an Emerging Capital Efficient Company with negative earnings,
but with a capital efficient business model that generates cash from working capital
as sales increase. Since most companies that can manage their working capital this
efficiently are also profitable, this scenario occurs infrequently.
4. Super Cash Flow. Companies in the upper-right Super Cash Flow quadrant
have both earnings and investment as a cash inflow. This kind of company is not
only profitable, but embarks on a one-time or continuous reduction in its net working
capital. A company can do this by lowering the amount of capital it has tied up in
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2 August 2001
current assets like accounts receivable or inventory, or by increasing the credit it

receives from suppliers in the form of accounts payable. Only a company with a
cash-efficient business modelits customers pay it before it has to pay its
supplierscan stay in this quadrant for long.
Exhibit 2: Cash Economics of Four Categories of Business Models
Investment
Outflow
Earnings
Inflow
Earnings
Outflow
Investment
Inflow
Profitable Buildout
Super Cash Flow
Value Destruction
Turnarounds
or
or
Startup
Emerging Capital
Efficient Company
Source: Company data, CSFB estimates.
Cash Economics: Physical versus the Knowledge

Businesses
One useful way of summarizing trends in cash earnings and investmentsand shifts in
business modelsis to plot these figures as a time series in a scatterplot. This
diagramwhich we have dubbed the Cash Economics Matrixalso shows a
companys ability to generate free cash flow, as all points on a 45-degree diagonal will
have the same free cash flow. Significantly, the diagonal running through the center of
the chart distinguishes whether a company is generating positive or negative free cash
flow.
Case Study Number One: Barnes and Noble versus Amazon.com

To illustrate this approach, we calculated generated cash economics matrices for
Barnes and Noble and Amazon.coma pair of companies that initially competed solely
in the book retailing industry. (See Exhibit 3 & 4 on the next page.):
Barnes and Noble shows it has consistently been in the Profitable Buildout quadrant
the company has generated a cash earnings inflow and a cash investment outflow for
every quarter since its January 1995 fiscal year. Most striking is the magnitude of the
companys cash investments. For example, for the year ended January 30, 2001, the
company invested $212 million to stock the shelves with books and extend credit to
customers. Partially offsetting this investment was $17 million in cash the company
generated from increased accounts payable. Combined with $252 million invested in
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2 August 2001
new stores, Barnes and Nobles total cash investment in fiscal 2001 exceeded $450
million.
So even though Barnes and Noble generated $225 million in cash earnings over the
same period, its investments more than consumed this amount, translating into $228 of
negative free cash flow.
Amazons cash economics matrix tells a completely different story. As skeptics have
correctly emphasized, the companys sales remain insufficient to offset the costs of the
its high marketing expenses, fulfillment costs, and the burden of its fixed infrastructure.
The result has been steady, albeit narrowing, losses. However, during two of its most
recent four quarters, Amazon generated considerable cash from its balance sheet.
Arguably, this places Amazon on the path to the Emerging Capital Efficient Company
quadrant.
By reducing its net working capital investment to negative $187 million over the course
of 2000, Amazon offset its fixed asset investment of around $300 million (including
capitalized leases) and cut its negative free cash flow in half. With a decline in fixed
asset investment Amazon may fulfill the true promise of its operating model by
ultimately creating cash from its investments. In the fourth quarter of 2000 Amazon
generated an enormous $249 million in cash from its balance sheet (aided materially by
the seasonality of the business). Despite a cash earnings loss of $61 million for the
quarter, AMZN generated $188 in positive free cash flow.
Amazons potential combination of earnings outflows and investment inflows is the exact
opposite of Barnes and Nobles more traditional combination of earnings inflows and
investment outflows. Investors anxious to own companies that just drown you in cash
have naturally focused on the income statement. However, looking at the balance sheet
of a knowledge company can unveil an important source of cash. Investors must look at
both financial statements, as it is free cash flowthe sum of a firms cash earnings and
investmentsthat drives shareholder value creation.
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2 August 2001
Exhibit 3: Rolling 4Q Normalized Free Cash Flow

Barnes and Noble 1995-2001
P ro fita b le
B u ild o u t
Q u ad r a n t
400.0
E arnings
Inflow
200.0
1 /0 1
Cash Earnings
Super
C a sh
F lo w
600.0
P os itive
Free C as h Flow
4 /9 4
(600.0)
(300.0)
Negative
Free C as h Flow
300.0
600.0
(200.0)
E arnings
Outflow
(400.0)
Investment Outflow
Investme nt Intflow
(600.0)
C a s h In v e stm e n t
Source: Company SEC filings and CSFB estimates.

Amazon.com 1999 - 2000
500.0
Profitable
B uildout
Quadrant
Cash Earnings
Earnings
Inflow
S uper
C ash Flow
Quadrant
250.0
P os itive
Free Cash Flow
(500.0)
(250.0)
3 /9 9
Earnings
O utflow
1 2 /0 0
(250.0)
Investm ent O utflow
Investm ent Intflow
(500.0)
C ash Investment
250.0
Negative
Free Cash Flow
500.0
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2 August 2001
Case Study Number Two: New York Times versus Yahoo!

Our second case study compares the New York Timesa print media companywith
Yahoo!a company in the New Media industry. As with our previous case study, a
side-by-side comparison of the cash economics matrices for these two companies
reveals dramatically different business models. (See Exhibit 5 & 6.)
Along with most successful traditional companies, the New York Times generates a
cash inflow from earnings and a cash outflow from investmentsplacing it in the
Profitable Buildout quadrant. In 2000, the companys media portfolio generated cash
earnings $416 million. At the same time, its investments to support its future earnings
growth resulted in a $744 million cash investment during this same period. The New
York Times is a successful and well-run company that in a normal operating
environment generates positive free cash flow. However, the very nature of its capitalintensive business means that cash earnings growth is inevitably accompanied by cash
investments.
In contrast, Yahoo!s on-line publishing model can reach new customers and grow sales
without spending lots of cash. This has several benefits. First, because consumers can
access web sites from any Internet connection, Yahoo! can grow its revenues rapidly
without having to endure long delays as it scales its physical infrastructure. This
increases sales, and allows the company to lock in customers before other
6
competitors acquire them. Second, because Yahoo! does not have to spend much
money to serve an incremental customer, revenue growth rapidly translates into higher
margins. This helped Yahoo! achieve sales of $1.1 billion and cash earnings of $172
million in 2000. This growth is even more impressive when compared to the companys
sales of $67 million and breakeven cash earnings in 1997. Further, the on-line business
model allows the company to grow without cash-consuming investments. For example,
the company only spent $141 million to grow its fixed asset base in 2000, despite
almost doubling its sales from $589 million to $1.1 billion.
All together, an increase in Yahoo!s non-interest bearing current liabilities generated
$92 million in cash. At the same time, the companys current assets used $74 million in
cash. The companys working capital generated a net of $18 million in 2000. However
the company saw a fixed investment outflow of $141 million for the year, which
generated a total investment outflow for the year of $123 million. Since Yahoo!
produced $172 million in cash earnings, it posted positive free cash flow of roughly $50
million for the year.
In the third quarter of 2000 Yahoo! generated close to $47 million from working capital,
which was offset by fixed investment of $42 million. This $5 million generated from
investment was added to quarterly cash earnings of $86 million, placing Yahoo! in the
Super Cash Flow quadrant for that quarter. As Yahoo!s fixed investment flows stabilize
going forward, the company may return to this quadrant on a regular basis.
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2 August 2001

New York Times 1996 - 2000
Profitable
B uildout
Quadrant
Super
C ash Flow
Quadrant
800.0
1 2 /0 0
400.0
Cash Earnings
Earnings
Inflow
9 /9 6
P ositive
Free Cash Flow
(800.0)
(400.0)
400.0
800.0
Negative
Free Cash Flow
Earnings
O utflow
(400.0)
Investm ent Outflow
Investm ent Intflow
(800.0)
Cash Investment

Yahoo! 1996 - 2001
Profitable
B uildout
Quadrant
Cash Earnings
Earnings
Inflow
Super
C ash Flow
Quadrant
350.0
175.0
1 2 /0 1
P os itive
Free Cash Flow
(350.0)
1 2 /9 6
(175.0)
Negative
Free Cash Flow
Earnings
Outflow
(175.0)
Investm ent Outflow
Investm ent Intflow
(350.0)
Cash Investment
10
175.0
350.0
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2 August 2001
This case study provides further insight into the possibilities surrounding these new
business models:
The scalability of a knowledge companys business model means that cash

earnings can quickly reverse from losses to profitsand then grow at a much faster
rate than sales. For example, in a 12-month trailing period in the middle of 1999
Yahoo!s sales grew at a 32% rate for three of those quarters, while its trailing cash
earnings grew at 127%about four times that rate. Further, since Yahoo!s cash
inflow from investments also grew at a similar rate, the companys overall free cash
flow grew at 128% during this period. Assuming Yahoo! can generate cash inflows
from investment on a regular basis going forward, it may well return to a positive
differential between sales growth and growth in cash flow.
Cash earnings for a physical company will typically overstate a companys free cash
flow. For example, in 1999-2000, the New York Times generated free cash flow of
$131 milliononly 17% of its cash earnings of $774 million.
11
Cash Flow.com
2 August 2001
Cash Economics Lifecycle

AOL] indicated they expect to be self-funding within 12 months. The core of the bearish
argument on AOL is that it is cash negative and requires infusions of cash to keep
operating. The earnings they report are not real earnings because AOL is not really
making any money, when money is defined as having free cash flow after tax ...
Consequently, the fact that this company expects to get cash neutral or cash positive in
twelve months is extremely bullish.
7
Bill Miller
President, Legg Mason Fund Advisors
After calculating cash economics matrices for a slew of physical and knowledge
companies, it has become evident that each category follows a distinct trend. In fact, the
pattern is so clear that we can generally say that physical asset oriented companies
have a certain cash economics lifecycle. Further, although the cash economics of
knowledge-based companies differ dramatically from their physical counterparts, they
too have their own lifecycle.
Cash Economics Lifecycle of the Typical Physical Company

Like all companies, physical companies tend to start in the Startup quadrant. However,
every successful physical company that we studied moved into the Profitable Buildout
quadrant, where it spends the majority of the rest of its life. A prime example of this is
Wal-Mart. Like most mature and successful companies with a bricks-and-mortar
infrastructure, Wal-Mart has enjoyed an inflow from cash earnings, while incurring an
outflow from its investments for 19 out of its past 20 quarters.8 (See Exhibit 7.) For
example, Wal-Mart generated $7.6 billion from cash earnings for fiscal year 2001.
However, as the company is still opening new stores and expanding internationally, it
also invested an unusually high $7.5 billion in fixed assets during this period. Typically,
Wal-Mart also invests in working capital to support this growth. Wal-Mart has engaged
in a largely successful initiative to push its already healthy working capital management
to new levels of performance. By paying its bills more slowly than it bought new
inventory the company pushed itself into negative working capital territory for two of its
past four quarters, generating $1 billion in working capital in the second quarter.
Just in case one thinks that Wal-Marts current cash economics are a temporary
9
phenomenon, we also calculated a similar matrix for the company from 1973 to 1975.
(See Exhibit 8.) Similarly to its recent history, the Wal-Mart of this period was also in the
Profitable Buildout quadrant.
Generalizing from our four matricesincluding Barnes and Noble, the New York Times,
and a nascent and mature Wal-Martwe can see a distinct trend. After a stint in the
Startup quadrant, most successful physical companies become cash earnings positive.
After making increasing cash investments, diminishing marginal returns eventually
forces a company to lower its investments until its annual investment nears its economic
depreciation, resulting in a net investment of approximately zero and a stable cash
earnings base. (Exhibit 9 represents this graphically.)
12
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2 August 2001

Wal-Mart 1994 - 2001
P ro fitab le
B u ild o u t
Qu ad ran t
Cash Earnings
Earnings
Inflow
S u pe r
C ash F low
Q ua dra nt
20,000
10,000
1 /0 1
P os itive
F ree Cas h Flow
1 /9 4
(20,000)
(10,000)
10,000
20,000
Negative
F ree Cas h Flow
E arnings
O utflow
(10,000)
Inves tm ent O utflow
Inves tm ent Intflow
(20,000)
C a sh In vestm en t

Wal-Mart 1973 - 1975
40
P ro fita b le
B u ild o u t
Q u a d ra n t
E arnings
Inflow
20
Cash Earnings
1975
F re e C a sh Fl o w
P o si ti ve
1974
1973
0
-4 0
-2 0
20
F re e C a sh F lo w
Ne g a tive
E arnings
O utflow
-2 0
Inves tm ent O utflow
-4 0
C a s h In v e s tm e n t
13
Inves tm ent Intflow
40
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2 August 2001
Exhibit 9: Cash Economics Matrix Average Physical Asset Oriented Company

Profitable
Buildout
Quadrant
Super
Cash Flow
Quadrant
Earnings
Inflow
Cash Earnings
Positive
Free Cash Flow
Negative
Free Cash Flow
Earnings
Outflow
Startup
Quadrant
Investment Outflow
Investment Intflow
Cash Investment
Cash Economics Lifecycle of the Typical Knowledge Company

The knowledge-based companies that this report features also start in the Startup
quadrant. However, a favorable cash conversion cycle can translate into a cash inflow
from investment, even in the face of mounting losses. This moves them to the Emerging
Capital Efficient Company quadrant. Then, as their business model scales and they
start to report earnings, both cash earnings and investments generate cash inflows. This
places them in the Super Cash Flow quadrant. (This is represented graphically in
Exhibit 11.)
Some of Yahoo!s and Amazons most recent quarters attest to the possibility of this
pattern taking root. A successful example of this pattern is Dell Computer, which builds
personal computers to the custom specifications of customers who order from mailorder catalogs, and from the companys Internet web site. (See Exhibit 10.) Since 1996
half of Dells quarters have witnessed a cash inflow from cash earnings and
investments, as its ability to generate cash from its working capital has more than paid
10
for its investments in fixed assets.
14
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2 August 2001
Exhibit 10: Cash Economics Matrix Rolling 4Q Normalized Free Cash Flow
Dell Comuter 1994-2000
Profitable
Buildout
Quadrant
Cash Earnings
Earnings
Inflow
1,000
(2,000)
Super
Cash Flow
Quadrant
2,000
10/00
Positive
Free Cash Flow
7/94
(1,000)
1,000
Negative
Free Cash Flow
Earnings
Outflow
(1,000)
Investment Outflow
Investment Intflow
(2,000)
Cash Investment
Exhibit 11: Cash Economics Matrix
Profitable
Buildout
Quadrant
Super
Cash Flow
Quadrant
Earnings
Inflow
Cash Earnings
Positive
Free Cash Flow
Negative
Free Cash Flow
Earnings
Outflow
Startup
Quadrant
Emerging Capital
Efficient Company
Quadrant
Investment Outflow
Investment Inflow
Cash Investment
15
2,000
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2 August 2001
Valuation in the Physical versus Knowledge

Economy
In the Theory of Investment Value, written over 50 years ago, John Burr Williams set
forth the equation for value, which we condense here: The value of any stock, bond or
business is determined by the cash inflows and outflowsdiscounted at the appropriate
interest ratethat can be expected to occur during the remaining life of the asset.
11
Warren Buffett
Investors care about the cash economics of businesses because they determine the
magnitude, timing, and risk of future cash flows. And as Buffett notes, the value of any
stock is the present value of these cash flows.
Because knowledge companies have dramatically different cash flows than physical
companies, we would expect them to have dramatically different valuations as well. To
demonstrate this, we valued a range of companies with different cash economics.
Specifically, we assumed the companies had initial cash earnings of $100, which grew
at a constant rate of 15% for 11 years. We also assumed that each company had
different initial cash investment requirementsranging from a cash outflow of $200 to a
cash inflow of $200which also grew at a constant rate of 15% for 10 years.
We can sum the cash earnings and investments to obtain a projected stream of free
cash flows for each company. Using a cost of capital of 10%, we performed a
discounted cash flow analysis to value each hypothetical company. We then plotted the
resulting price-to-earnings ratio versus the initial cash investments for each company.
(See Exhibit 12.)
Exhibit 12: Price-to-Earnings Ratio versus Initial Cash Investment
60
Price to Earnings Ratio
50
40
30
20
10
-250
-200
-150
-100
-50
50
100
150
200
Initial Cash Investment

Increasing Cash Investment Outflow
16
Increasing Cash Investment Inflow
250
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2 August 2001
As we would expect, all things equal, the larger the cash inflow from cash investments,
the more valuable the company. Conversely, a larger cash outflow from cash
investments translates into a lower valuation. We see this pattern in the real world as
well. The companies we profiled all have significantly less investment needs than their
physical counterparts. Thus, we believe that there are solid fundamental underpinnings
behind the high valuations in the Internet sector. (See Exhibit 13.)
Exhibit 13: Valuation Metrics for Old and New Economy Companies:
Price to Sales
Ticker
Company
2001E
2002E
in millions
AMZN
BKS
Amazon
Barnes and Noble
YHOO
NYT
Yahoo!
New York Times
DELL
WMT
Dell Computer
Wal-Mart
Enterprise Value to
Price to Earnings
Sales
2001E
2002E
2001E
2002E
in millions
per share
1.8
0.4
1.5
0.4
1.8
0.6
1.5
0.5
NMF
20.7
NMF
16.0
16.4
2.1
12.9
2.0
15.8
2.2
12.4
2.1
531.2
19.9
158.2
17.2
1.9
1.1
1.7
1.0
1.8
1.2
1.6
1.0
32.6
34.3
28.0
29.9
Conclusion
As people, ideas, and networks continue to become the major sources of competitive
advantage for companies, we believe that this shift will only become more intractable.
Hence, we believe that an understanding of the different cash economics of knowledge
companies is essentialnot only for the technology investors of today, but for the
generalist investors of tomorrow.
N.B.: CREDIT SUISSE FIRST BOSTON CORPORATION may have, within the last three years, served as a manager or co-manager
of a public offering of securities for or makes a primary market in issues of any or all of the companies mentioned.
Closing prices as of April 30, 2001:
Amazon.com (AMZN, $16.89)
AOL Time Warner (AOL, $51.96)
Barnes and Noble (BKS, $32.90)
Borders Book Group (BGP, $19.69)
The New York Times (NYT, $41.28)
Wal-Mart (WMT, $53.50)
Yahoo! (YHOO, $22.31)
17
Q1/99
Q2/99
Q3/99
1999
Q1/00
Q2/00
Q3/00
Q4/00
Assets
Cash and ST Investments
Excess cash
Required cash
Inventories
Prepaid expenses and other
1,443.0
1,430.3
12.6
45.2
37.1
1,144.2
1,113.7
30.5
59.4
53.3
905.7
891.0
14.7
118.8
55.6
706.2
690.5
15.7
220.6
85.3
1,008.9
926.9
82.0
172.3
89.8
907.6
878.9
28.7
172.4
86.7
900.0
871.1
28.9
163.9
99.2
1,100.5
1,068.6
31.9
174.6
86.0
95.0
143.2
189.1
321.7
344.1
287.7
292.0
292.5
Accounts payable
Accrued advertising
Other liabilites and accrued expenses
Non-Interest Bearing Current Liabilities
133.0
16.2
45.2
194.4
166.0
22.4
79.7
268.1
236.7
24.6
83.6
344.9
463.0
55.9
150.9
669.8
255.8
160.6
416.4
286.2
188.1
474.3
304.7
195.1
499.8
485.4
341.9
827.3
Net Working Capital
(99.4)
(124.9)
(155.8)
(348.1)
(72.4)
(186.6)
(207.9)
(534.8)
Net P,P&E
Present Value of Oper Leases
60.6
105.6
156.3
106.4
221.2
107.1
317.6
107.9
334.4
171.7
344.0
235.5
352.3
299.4
366.4
363.2
Phantom goodwill
Goodwill and other purchased intangibles
Total accumulated amortization
87.8
187.2
71.2
87.8
741.9
121.7
87.8
705.9
221.2
87.8
730.1
268.6
87.8
647.2
273.4
87.8
596.8
333.7
87.8
520.5
394.1
87.8
255.3
454.4
512.3
1,214.0
1,343.2
1,512.0
1,514.4
1,597.8
1,653.9
1,527.1
412.9
1,089.2
1,187.4
1,163.9
1,442.0
1,411.2
1,446.0
992.3
Current Assets
18
Fixed Assets
Invested capital
Cash Flow.com
Exhibit 14: Amazons Accumulated Cash Investments, or Invested Capital (in millions, 1999 to present)
Source: Company SEC filings and CSFB analysis, note: invested capital excludes investments and deferred charges.
2 August 2001
Q1/99
Q2/99
Q3/99
Q4/99
Q1/00
Q2/00
Q3/00
Q4/00
19
Net Sales
293.6
314.4
355.8
676.0
573.9
577.9
637.9
972.4
Total COS
Gross income
228.9
64.8
246.8
67.5
285.3
70.5
588.2
87.8
445.8
128.1
441.8
136.1
470.6
167.3
748.1
224.3
60.7
23.5
11.2
25.3
86.6
44.6
18.5
99.5
11.8
260.9
179.9
57.3
25.9
47.4
14.2
324.8
140.1
61.2
26.0
85.0
13.7
326.0
129.8
67.1
28.5
82.9
8.2
316.4
138.3
71.2
26.2
91.0
4.1
330.8
186.2
69.8
28.2
263.3
(1.1)
546.4
Marketing and sales

Product development
General and administrative
M&A related costs
Stock-based compensation
Operating Expenses
120.7
85.9
34.3
14.5
50.5
4.7
190.0
Adjusted EBIT
(55.9)
(122.5)
(190.5)
(236.9)
(197.9)
(180.4)
(163.5)
(322.1)
25.3
(30.6)
50.5
(71.9)
99.5
(91.0)
47.4
(189.5)
85.0
(112.9)
82.9
(97.5)
91.0
(72.5)
263.3
(58.8)
2.5
2.5
2.5
2.5
2.6
2.6
5.0
5.0
6.9
6.9
8.8
8.8
(28.1)
(69.4)
(88.4)
+ Goodwill amortization
Adjusted EBITA
+ Interest expense of cap O L
Net Adjustment for Capitalized Expenses
Adjusted Net Operating Profit
+ Change in reserves
Change in deferred revenues
Income Equivalents
2.6
2.6
3.2
3.2
(186.9)
(109.8)
(92.5)
(65.6)
(50.1)
(19.2)
(19.2)
26.5
26.5
(10.9)
(10.9)
80.0
80.0
Net Operating Profit Before Taxes

Income Tax Provision
(28.1)
-
(69.4)
-
(88.4)
-
(186.9)
-
(29.8)
-
(111.7)
-
(39.1)
-
(61.0)
-
Net Operating Profit After Taxes
(28.1)
(69.4)
(88.4)
(186.9)
(29.8)
(111.7)
(39.1)
(61.0)
Cash Flow.com
Exhibit 15: Amazons Cash Earnings, or Net Operating Profit After Taxes (in millions, 1999 to present)
Source: Company SEC filings and CSFB analysis.Note: R&D is expensed.
2 August 2001
Q1/99
Quarterly Cash Earnings
Q2/99
Q3/99
Q4/99
Q1/00
Q2/00
Q3/00
Q4/00
(28.1)
(69.4)
(88.4)
(186.9)
(29.8)
(111.7)
(39.1)
(61.0)
Inventory
Curent Assets
15.7
15.8
31.5
14.2
16.3
30.4
59.4
2.3
61.7
101.9
29.8
131.6
(48.4)
4.5
(43.9)
0.1
(3.2)
(3.0)
(8.5)
12.5
4.0
10.7
(13.1)
(2.5)
Accounts payable
Accrued advertising
Other liabilites and accrued expenses
Current Liabilities
19.7
3.1
10.6
33.5
33.0
6.2
10.6
73.7
70.7
2.2
17.8
76.8
226.3
31.3
52.4
324.9
(207.2)
(55.9)
18.8
(253.4)
30.4
2.1
57.9
18.5
13.2
25.5
180.7
112.6
327.4
3.0
30.9
33.9
(25.4)
96.5
71.1
(31.0)
65.7
34.7
(192.3)
97.1
(95.2)
275.8
80.6
356.4
(114.2)
73.5
(40.8)
(21.3)
72.1
50.8
(326.9)
77.9
(248.9)
Free cash flow
(62.0)
(140.5)
(123.1)
(91.7)
(386.1)
(70.9)
(89.9)
187.9
Normalized Cash Investment Inflow (Outflow)

Cash Earnings Inflow (Outflow)
Normalized Free Cash Flow
(33.9)
(28.1)
(62.0)
(71.1)
(69.4)
(140.5)
(34.7)
(88.4)
(123.1)
95.2
(186.9)
(91.7)
(356.4)
(29.8)
(386.1)
40.8
(111.7)
(70.9)
(50.8)
(39.1)
(89.9)
248.9
(61.0)
187.9
(26.5)
(79.6)
(106.2)
(89.6)
(138.2)
(227.8)
(115.7)
(205.2)
(320.9)
(44.5)
(372.8)
(417.4)
(367.0)
(374.5)
(741.5)
(255.1)
(416.8)
(671.9)
(271.2)
(367.5)
(638.7)
(117.4)
(241.6)
(359.0)
Cash Flow.com
Exhibit 16: Summary of Amazons Cash Earnings and Investments (in millions, 1999 to present)
Quarterly Changes:
20
Investment in net working capital

Investment in fixed assets
Total Cash Investment
Trailing Twelve Months:

Source: Company SEC filings and CSFB analysis. Note: Normalized Cash Investment does not include stock or cash spent on acquisition of web technology companies with little or no cash earnings.
2 August 2001
Cash
Excess cash
Required cash
Receivables
Inventory
LIFO reserve
Prepaid expenses
Curent Assets
31.1
15.8
26.1
10.8
5.0
5.0
57.5
43.2
945.1
940.3
2.9
54.6
74.7
1,065.1 1,063.3
9.6
4.6
5.0
54.1
913.6
76.5
1,049.2
19.2
14.2
5.0
76.5
1,275.2
59.1
1,415.8
24.2
18.9
33.3
19.2
13.9
28.3
5.0
5.0
5.0
58.2
58.4
69.0
1,102.5 1,162.1 1,121.1
56.6
49.9
70.0
1,222.3 1,275.4 1,265.1
4Q01
1/30/01
36.6
31.6
5.0
88.3
1,454.9
72.6
1,620.8
26.0
21.0
5.0
84.5
1,238.6
106.1
1,434.3
Cash Flow.com
Exhibit 17: Barnes and Nobles Accumulated Cash Investments, or Invested Capital (in millions, 4Q99 to present)
4Q99
1Q00
2Q00
3Q00
4Q00
1Q01
2Q01
3Q01
1/30/99 5/2/99 7/31/99 10/30/99 1/30/00 5/2/00 7/29/00 10/28/00
Assets
21
Accounts payable
Other current liabilities
Current Liabilities
498.2
274.1
772.3
439.5
225.1
664.6
394.4
210.4
604.8
756.9
210.5
967.5
599.4
323.5
922.9
589.8
221.1
811.0
578.2
214.4
792.6
865.2
196.6
1,061.8
582.1
353.0
935.1
Net Working Capital
292.8
398.7
444.5
448.3
299.4
464.4
472.5
559.0
499.2
510.3
515.7
1,811.4 1,829.3
87.0
86.2
39.7
50.6
2,448.4 2,481.9
529.7
1,847.3
85.4
48.8
2,511.1
557.2
1,865.2
287.4
45.0
2,754.9
568.0
553.3
570.5
1,883.1 1,937.8 1,992.4
298.0
299.4
423.8
65.7
62.4
61.1
2,814.9 2,852.8 3,047.8
577.9
2,047.0
420.1
63.3
3,108.3
566.2
2,101.6
359.2
40.2
3,067.2
2,741.1 2,880.5
2,955.6
3,203.2
3,114.3 3,317.3 3,520.3
3,667.3
3,566.4
Net P,P&E
Present value of operating leases
Intangible assets, net
Other noncurrent assets
Fixed Assets
Invested capital
Source: Company SEC filings and CSFB analysis. *note: PV operating lease calculations for 2001 are estimates.
2 August 2001
4Q99
1/30/99
1Q00
5/2/99
2Q00
3Q00
7/31/99 10/30/99
4Q00
1/30/00
1Q01
5/2/00
2Q01
3Q01
7/29/00 10/28/00
4Q01
1/30/01
22
Net sales
Cost of sales, buying and occupancy
Gross income
990.2
670.2
320.0
718.3
526.0
192.4
727.2
527.9
199.3
715.9
515.4
200.5
1,324.6
914.5
410.2
894.3
654.2
240.1
924.3
676.3
248.1
951.8
693.0
258.9
1,605.4
1,146.3
459.1
Selling and administrative expenses

Depreciation and amortization
Pre-opening expenses
Total operating expenses
106.5
18.9
1.9
127.3
151.9
25.8
0.8
178.5
155.7
26.6
1.5
183.8
150.5
27.8
2.1
180.4
193.0
32.2
2.3
227.5
181.3
33.0
1.5
215.8
190.7
34.6
1.8
227.1
190.9
37.0
2.8
230.7
250.1
40.2
1.6
291.9
192.7
13.8
15.5
20.1
182.7
24.3
20.9
28.2
167.2
0.6
193.3
3.8
17.6
3.8
19.2
3.8
23.8
3.8
186.5
1.9
26.2
1.9
22.8
1.9
30.1
1.9
169.1
35.7
35.7
36.2
36.2
36.6
36.6
36.9
36.9
37.3
37.3
37.7
37.7
38.8
38.8
39.8
39.8
40.9
40.9
229.0
53.8
55.8
60.8
223.8
63.9
61.6
69.9
210.0
Change in LIFO reserve

Change in Capitalized Expenses
(2.9)
(2.9)
229.0
56.7
55.8
60.8
223.8
63.9
61.6
69.9
210.0
73.7
1.9
12.5
88.1
(1.0)
1.7
12.7
13.3
16.4
1.8
12.8
4.8
26.1
2.4
2.0
12.9
(2.3)
19.6
71.9
2.9
13.1
7.5
80.5
(2.9)
3.4
13.2
(3.8)
17.4
(6.1)
4.6
13.6
1.0
11.1
(3.7)
5.3
13.9
1.3
14.3
31.7
5.4
14.3
37.4
(49.2)
138.1
140.9
43.3
29.7
41.2
143.3
46.5
50.5
55.7
72.0
Adjusted EBIT
Adjusted EBITA
+ Interest expense of capitalized operating leases
+ Income tax provision

+ Net tax impact from interest
+ Tax benefit from capitalization of operating lea
+ Net tax impact of non-operating charges/gains
- Adjusted Increase deferred taxes
Cash operating taxes
Cash Flow.com
Exhibit 18: Barnes and Nobles Cash Earnings, or Net Operating Profit After Taxes (in millions, 4Q99 to present)
Source: Company SEC filings and CSFB analysis.
2 August 2001
140.9
43.3
29.7
41.2
143.3
46.5
50.5
55.7
72.0
104.7
(105.9)
(45.8)
(3.8)
148.9
(165.0)
(8.0)
(86.5)
59.8
Quarterly Changes:
23
Investment in fixed plant
(8.5)
(33.5)
(29.2)
(243.8)
(60.0)
(37.9) (195.0)
(60.5)
41.1
Quarterly Cash Investment
96.1
(139.4)
(75.0)
(247.6)
88.9
(203.0) (203.0)
(147.0)
100.9
237.1
(96.1)
(45.3)
(206.5)
232.2
(156.5) (152.5)
(91.3)
172.9
(13.7)
(90.7)
(13.2)
(79.4)
(14.7)
(88.7)
(10.3)
(0.7) (15.2) (14.9)
(215.9) (154.5) (221.8) (207.5)
14.3
38.4
21.0
(30.6)
24.4
6.8
9.6
(51.8)
16.2
2.1
9.2
(75.9)
Free Cash Flow
Cash Flow.com
Exhibit 19: Summary of Barnes and Nobles Cash Earnings and Investments (in millions, 4Q99 to present)
4Q99
1Q00
2Q00
3Q00
4Q00 1Q01 2Q01
3Q01
4Q01
1/30/99 5/2/99 7/31/99 10/30/99 1/30/00 5/2/00 7/29/00 10/28/00 1/30/01
Receivables
Inventory & LIFO reserve
Prepaid expenses and other current
assets
Accounts payable
13.8
133.0
28.5
(50.8)
(1.9)
101.1
49.4
(6.7)
24.8
150.3
(3.9)
(65.8)
(11.8) (26.3)
(179.8) (136.2)
6.5
183.8
4.1
(28.0)
(13.5) (49.5)
108.3
(17.3)
(13.9)
29.5
(110.7) (199.8)
Investment in fixed plant
(122.1)
(134.5) (117.7)
(315.1) (366.5) (371.0) (536.7)
(353.4) (252.3)
Cash Investments Inflow (Outflow)

Free Cash Flow
(152.8)
206.9
54.1
(186.3) (193.7)
227.7 236.6
42.9
41.4
(365.9) (373.2) (436.7) (564.7)

255.1 257.5 260.6 281.4
(110.8) (115.7) (176.1) (283.3)
(464.1) (452.1)
296.0 224.6
(168.1) (227.5)
Source: Company SEC filings and CSFB analysis..
2 August 2001
1 Q /9 9
3 /3 1 /9 9
C a s h a n d c a s h e q u iv a le n ts
S h o rt-te rm in v e s tm e n ts
L o n g -te r m in v e s tm e n ts
A c tu a l c a s h a n d S T in v e s tm e n ts
E xcess cash
R e q u ire d c a s h
A c c o u n ts re c e iv a b le
P re p a id e x p e n s e
C u re n t A s s e t s
2 Q /9 9
6 /3 0 /9 9
3 Q /9 9
9 /3 1 /9 9
4 Q /9 9
1 2 /3 1 /9 9
1 Q /0 0
3 /3 1 /0 0
2 Q /0 0
6 /3 0 /0 0
3 Q /0 0
9 /3 0 /0 0
4 Q /0 0
1 2 /3 1 /0 0
24
1 8 4 .5
2 5 1 .9
2 1 8 .5
6 5 4 .8
6 4 9 .8
5 .0
2 6 .9
9 .1
4 1 .0
1 8 4 .1
3 6 6 .8
2 1 9 .8
7 7 0 .8
7 6 5 .8
5 .0
3 4 .1
1 3 .0
5 2 .0
1 4 1 .5
5 3 4 .8
1 7 0 .2
8 4 6 .5
8 4 0 .8
5 .8
4 3 .9
1 4 .0
6 3 .7
2 3 4 .0
6 3 8 .5
3 3 9 .6
1 ,2 1 2 .1
1 ,2 0 4 .3
7 .8
5 4 .4
1 9 .0
8 1 .2
3 3 6 .6
6 5 5 .3
5 5 1 .9
1 ,5 4 3 .8
1 ,5 3 2 .2
1 1 .6
5 9 .7
2 0 .4
9 1 .7
4 4 4 .6
5 9 9 .6
6 0 3 .7
1 ,6 4 7 .9
1 ,6 3 6 .5
1 1 .4
6 7 .7
2 4 .7
1 0 3 .8
5 2 2 .2
7 1 5 .3
6 1 3 .1
1 ,8 5 0 .6
1 ,8 3 7 .1
1 3 .5
7 4 .5
2 7 .0
1 1 5 .0
4 8 6 .9
6 6 3 .4
6 2 6 .0
1 ,7 7 6 .2
1 ,7 6 1 .4
1 4 .8
9 0 .6
5 0 .1
1 5 5 .4
A c c o u n ts p a y a b le
A c c r u e d e x p e n s e s a n d o th e r c u rre n t lia b ilitie s
C u rre n t L ia b ilit ie s
7 .3
3 8 .1
4 5 .4
8 .3
5 4 .9
6 3 .2
1 1 .2
7 4 .1
8 5 .4
1 3 .5
8 8 .2
1 0 1 .6
1 4 .5
1 0 5 .3
1 1 9 .8
1 6 .4
1 2 7 .3
1 4 3 .8
1 9 .3
1 8 2 .2
2 0 1 .5
2 6 .0
1 6 8 .0
1 9 4 .1
N e t W o rk in g C a p ita l
(4 .4 )
(1 1 .1 )
(2 1 .7 )
(2 0 .4 )
(2 8 .1 )
(4 0 .0 )
(8 6 .5 )
(3 8 .7 )
1 9 .9
2 0 .0
3 4 .2
2 7 .7
4 4 .5
3 5 .4
5 8 .1
4 3 .1
6 4 .4
6 5 .5
7 9 .0
8 7 .9
9 8 .1
1 1 0 .3
1 0 9 .8
1 3 2 .7
8 0 .9
3 .9
9 9 .1
5 .9
1 0 6 .1
7 .8
1 2 6 .2
9 .7
2 0 4 .8
1 4 .6
2 1 8 .7
1 9 .6
2 5 9 .6
2 4 .5
2 4 2 .9
2 9 .4
2 1 .2
2 1 .2
2 1 .2
2 1 .2
2 1 .2
2 1 .2
2 1 .2
2 1 .2
6 2 .8
6 2 .8
6 2 .8
6 2 .8
6 2 .8
6 2 .8
6 2 .8
6 2 .8
2 0 .1
2 0 .1
2 0 .1
2 0 .1
2 0 .1
2 0 .1
2 0 .1
2 0 .1
2 5 .6
2 5 .6
3 ,1 4 6 .7
5 3 .6
2 5 .6
3 ,1 4 6 .7
5 3 .6
4 ,0 3 1 .9
2 5 .6
3 ,1 4 6 .7
5 3 .6
4 ,0 3 1 .9
2 5 .6
3 ,1 4 6 .7
5 3 .6
4 ,0 3 1 .9
7 5 .8
2 9 8 .6
3 ,5 4 0 .9 6
7 ,5 9 9 .7 9
7 ,6 4 3 .0 5
7 ,8 3 1 .0 6
2 5 .6
3 ,1 4 6 .7
5 3 .6
4 ,0 3 1 .9
7 5 .8
3 7 0 .2
8 ,2 5 7 .1 4
2 5 .6
3 ,1 4 6 .7
5 3 .6
4 ,0 3 1 .9
7 5 .8
3 7 0 .2
8 ,3 4 4 .5 2
2 5 .6
3 ,1 4 6 .7
5 3 .6
4 ,0 3 1 .9
7 5 .8
3 7 0 .2
8 ,3 6 6 .8 4
2 9 4 .1
3 ,5 2 9 .8
7 ,5 7 8 .1
7 ,6 2 2 .7
7 ,8 0 3 .0
8 ,2 1 7 .1
8 ,2 5 8 .0
8 ,3 2 8 .2
N e t P ,P & E
P re s e n t V a lu e o f O p e r L e a s e s
O th e r
A c c u m u la te d g o o d w ill a m o rtiz a tio n
P h a n to m g o o d w ill fr o m b u y o u t o f V is a s in te r e s t in
Y a h o o ! M a rk e tp la c e
P h a n to m g o o d w ill fr o m p o o lin g a c q u is itio n o f
F o ur11
W ebCal
Y oyodyne
G e o C itite s
O n lin e A n y w h e r e
b ro a d c a s t.c o m
A rth a s .c o m
e G ro u p s
F ix e d A s s e ts
In v e s t e d c a p it a l
Cash Flow.com
Exhibit 20: Yahoo!s Accumulated Cash Investments, or Invested Capital (in millions, 1999 to present)
Source: Company SEC filings and CSFB analysis
2 August 2001
1Q/99
3/31/99
2Q/99
6/30/99
3Q/99
9/31/99
4Q/99
12/31/99
1Q/00
3/31/00
2Q/00
6/30/00
3Q/00
9/30/00
4Q/00
12/31/00
86.1
9.7
76.4
115.2
18.5
96.8
155.1
26.2
128.9
232.2
47.4
184.8
228.4
34.5
193.9
270.1
39.3
230.8
295.5
40.9
254.7
316.1
43.8
272.4
Sales and marketing

Product development
General and administrative
Acquisition costs
32.3
9.0
3.5
1.2
45.9
42.7
12.9
6.9
3.5
65.9
53.3
16.2
8.2
3.5
81.2
86.7
29.4
17.8
5.7
139.5
78.5
23.2
12.9
4.1
118.6
94.7
24.2
14.2
4.8
137.9
109.2
30.1
19.9
5.4
164.6
137.4
39.8
27.5
5.4
210.1
Adjusted EBIT
30.4
30.9
47.7
45.3
75.3
92.9
90.1
62.3
Goodwill amortization
Adjusted EBITA
1.6
32.0
3.8
34.7
3.8
51.5
6.0
51.3
4.4
79.7
5.1
98.0
5.8
95.9
5.8
68.1

0.4
0.4
0.6
0.6
0.7
0.7
0.9
0.9
1.3
1.3
1.8
1.8
2.2
2.2
2.7
2.7
Change in Deferred Revenues
7.2
18.4
8.4
18.3
24.2
10.6
26.9
(35.2)
39.6
53.7
60.7
70.5
105.2
110.4
125.0
35.5
Income tax provision

+ Tax benefit from capitalization of operating leases
+ Tax benefit from minority interest
- Increase deferred taxes
Cash Operating Taxes
10.5
(2.3)
0.1
0.1
8.4
(3.0)
(2.8)
0.2
0.3
(5.3)
20.2
(3.5)
0.2
0.2
17.1
13.1
(4.6)
0.3
0.3
9.1
51.9
(19.9)
0.5
0.6
33.1
43.6
(6.4)
0.6
0.8
38.6
47.7
(10.1)
0.8
0.5
38.8
44.8
48.2
0.9
(0.0)
94.0
31.2
59.0
43.6
61.4
72.0
71.8
86.2
(58.5)
25
Net revenue
Cost of revenue
Gross income
Cash Flow.com
Exhibit 21: Yahoo!s Cash Earnings, or Net Operating Profit After Taxes (in millions, 1999 to present)
Source: Company SEC filings and CSFB analysis. Note: R&D is expensed.
2 August 2001
1Q/99
3/31/99
2Q/99
6/30/99
3Q/99
9/31/99
4Q/99
12/31/99
1Q/00
3/31/00
2Q/00
6/30/00
3Q/00
9/30/00
4Q/00
12/31/00
31.2
59.0
43.6
61.4
72.0
71.8
86.2
(58.5)
(2.4)
12.4
10.0
(6.7)
22.0
15.3
(10.5)
18.0
7.5
1.3
21.3
22.6
(7.7)
28.7
21.0
(11.9)
37.0
25.1
(46.5)
41.5
(5.0)
47.9
34.1
82.0
31.2
10.0
21.2
59.0
15.3
43.7
43.6
7.5
36.1
61.4
22.6
38.8
72.0
21.0
51.1
71.8
25.1
46.7
86.2
(5.0)
91.2
(58.5)
82.0
(140.4)
106.4
(16.5)
89.9
149.9
(28.7)
121.1
169.6
(35.7)
133.9
195.1
(55.3)
139.8
236.0
(66.3)
169.7
248.8
(76.1)
172.7
291.4
(63.7)
227.8
171.6
(123.1)
48.5
Cash Flow.com
Exhibit 22: Summary of Yahoo!s Cash Earnings and Investments (in millions, 1999 to present)
Quarterly Changes:
26
Quarterly NOPAT
Source: Company SEC filings and CSFB analysis. Note: Normalized Cash Investment does not include stock or cash spent on acquisition of web technology companies with little or no cash earnings.
2 August 2001
1Q99
3/31/99
2Q99
6/30/99
3Q99
9/30/99
4Q99
12/30/99
1Q00
3/31/00
2Q00
6/30/00
3Q00
9/30/00
4Q00
12/30/00
27
Cash
Excess cash
Required cash
Accounts receivable, net
Inventories
Other current assets
Curent Assets
39.8
34.8
5.0
321.4
36.8
119.1
482.4
31.9
26.9
5.0
342.5
28.0
118.0
493.5
43.6
38.6
5.0
324.2
33.9
127.5
490.7
63.9
58.9
5.0
366.8
28.7
155.6
556.0
36.1
31.1
5.0
363.5
31.2
159.2
559.0
37.5
32.5
5.0
370.6
32.3
157.0
564.9
42.9
37.9
5.0
347.7
41.3
169.2
563.1
69.0
64.0
5.0
341.9
35.1
164.8
546.7
Accounts payable
Payrolls
Accrued expenses
Current Liabilities
169.5
74.9
192.1
436.4
153.4
83.0
170.5
406.9
177.8
85.1
183.4
446.4
191.7
105.3
193.6
490.5
200.4
81.9
223.7
505.9
195.0
93.3
203.0
491.3
193.0
105.4
190.0
488.4
178.3
114.2
203.9
496.4
46.0
86.6
44.3
65.5
53.1
73.6
74.7
50.3
1,305.9
955.9
248.1
359.0
26.1
2,895.0
1,283.1
948.4
255.6
353.7
28.5
2,869.3
1,267.7
969.7
260.4
348.6
30.8
2,877.2
1,218.4
961.8
262.1
343.2
33.2
2,818.7
1,236.2
1,096.4
279.7
455.4
184.0
3,251.7
1,216.5
1,090.6
292.9
441.0
334.9
3,375.9
1,199.5
1,083.2
300.8
432.9
485.7
3,502.1
1,207.2
1,060.8
302.6
419.3
636.6
3,626.4
200.0
126.1
223.6
128.4
223.9
126.2
235.5
121.9
241.6
123.0
240.9
121.2
222.0
118.4
201.3
107.3
3,267.1
3,307.8
3,271.6
3,241.7
3,669.3
3,811.6
3,917.2
3,985.4
Net Working Capital

Net PP&E
Intangible assets acquired
Accumulated goodwill amortization
Other intangible assets acquired
Fixed Assets
Miscellaneous assets
Investment in joint venture
Invested capital
Cash Flow.com
Exhibit 23: New York Times Accumulated Cash Investments, or Invested Capital (in millions, 4Q98 to present)
2 August 2001
1Q99
3/31/99
2Q99
6/30/99
3Q99
9/30/99
4Q99
12/31/99
1Q00
3/31/00
2Q00
6/30/00
3Q00
9/30/00
4Q00
12/31/00
Total revenues
739.1
779.4
729.7
882.5
843.2
885.6
787.3
973.4
Cost of sales
329.8
337.2
313.0
398.8
359.3
365.0
353.3
380.5
Gross income
409.3
442.2
416.7
483.7
483.9
520.6
434.0
592.8
294.0
287.3
303.9
295.3
329.0
334.7
317.9
413.9
115.2
154.9
112.8
188.4
154.9
185.9
116.2
178.9
12.7
127.9
12.8
167.6
9.9
122.7
14.8
203.2
16.8
171.7
16.7
202.5
16.0
132.2
7.7
186.6
0.5
0.5
0.5
0.5
0.6
0.6
0.6
0.6
0.7
0.7
3.7
3.7
6.7
6.7
9.7
9.7
128.4
168.2
123.3
203.8
172.4
206.2
138.9
196.3
Selling, general and administrative expenses
28
Adjusted EBIT
Adjusted EBITA
Change in deferred revenues
Income Equivalents
4.7
4.7
133.1

+ Net tax impact of non-operating charges/gains
46.1
4.2
0.2
(1.5)
0.1
48.9
84.2
(4.9)
(4.9)
163.3
61.8
4.5
0.2
(1.1)
11.8
53.6
109.7
2.5
2.5
125.7
44.7
4.5
0.2
(1.7)
(34.0)
81.7
44.0
(3.3)
(3.3)
200.6
75.6
4.6
0.2
(1.9)
(2.1)
80.5
120.1
7.8
7.8
180.2
60.2
5.4
0.2
(1.3)
(8.8)
73.3
106.9
(6.6)
(6.6)
199.6
72.6
5.3
1.3
(1.3)
(6.3)
84.2
115.4
5.9
5.9
Cash Flow.com
Exhibit 24: New York Times Cash Earnings, or Net Operating Profit After Taxes (in millions, 4Q98 to present)
(0.1)
(0.1)
144.8
196.2
49.8
6.1
2.3
(9.1)
(21.3)
70.5
93.0
5.6
3.4
(23.8)
1.6
76.6
74.3
119.6
2 August 2001
3Q00
9/30/00
4Q00
12/31/00
84.2
109.7
44.0
120.1
106.9
115.4
74.3
119.6

24.3
87.9
112.2
(40.6)
25.7
(14.9)
42.3
(7.9)
34.4
(21.3)
58.5
37.2
12.4
(433.0)
(420.5)
(20.6)
(124.2)
(144.8)
(1.0)
(126.2)
(127.2)
24.4
(124.3)
(99.9)
Free Cash Flow
196.4
94.8
78.4
157.3
(313.6)
(29.4)
(53.0)
19.6

Iinvestment in fixed assets
1.8
77.9
(19.1)
72.6
9.8
68.1
4.7
164.2
(7.1)
(356.7)
12.9
(506.6)
(30.4)
(624.9)
15.2
(807.7)
Total Cash Investment Inflow (Outflow)

Free Cash Flow
44.4
322.4
366.8
(15.2)
347.2
332.0
9.7
313.0
322.6
100.8
358.0
458.8
(402.2)
380.6
(21.5)
(503.8)
386.4
(117.4)
(645.6)
416.7
(228.9)
(743.7)
416.2
(327.5)
Cash Flow.com
Exhibit 25: Summary of New York Times Cash Earnings and Investments (in millions, 4Q98 to present)
1Q99
2Q99
3Q99
4Q99
1Q00
2Q00
3/31/99
6/30/99
9/30/99 12/31/99 3/31/00
6/30/00
Quarterly Changes:
29
2 August 2001
4Q99
1/31/99
1Q00
4/30/99
2Q00
7/31/99
3Q00
10/31/99
4Q00
1/31/00
1Q01
4/30/00
2Q01
7/31/00
3Q01
10/31/00
4Q01
1/31/01
Cash
Excess cash
Required cash
Receivables
Inventory
LIFO reserve
Curent Assets
1,879
1,879
1,118
17,076
473
1,059
21,605
1,967
1,967
1,154
18,149
449
1,076
22,795
1,508
1,508
1,276
18,793
426
1,256
23,259
1,435
1,435
1,630
22,373
402
1,517
27,357
1,856
1,856
1,341
19,793
378
1,366
24,734
1,360
1,360
1,265
20,971
334
1,505
25,435
1,310
1,310
1,249
21,093
290
1,593
25,535
1,311
1,311
1,468
24,975
246
1,675
29,675
2,054
2,054
1,768
21,442
202
1,291
26,757
Accounts payable
Accrued expenses & other
Current Liabilities
10,257
5,499
15,756
11,235
6,510
17,745
12,326
7,220
19,546
14,081
8,452
22,533
13,105
7,290
20,395
13,160
9,705
22,865
12,634
8,162
20,796
15,872
9,843
25,715
15,092
7,196
22,288
5,849
5,050
3,713
4,824
4,339
2,570
4,739
3,960
4,469
31,541
3,216
2,960
820
9,837
328
48,702
32,839
3,130
3,021
632
9,392
387
49,401
33,901
3,093
3,388
664
9,604
470
51,120
34,889
3,115
3,754
893
9,265
553
52,470
36,214
3,112
4,121
1,302
8,994
636
54,380
37,617
3,317
4,488
1,582
9,059
720
56,782
53,526
53,740
53,690
57,209
58,340
61,251
Assets
30
Net Working Capital

Net P,P&E
Net capitalized leases
Other fixed assets
Net Goodwill and other acquired intangibles
Accumulated goodwill amortization
Fixed Assets
23,674
2,299
2,777
2,891
24,310
2,440
2,838
2,927
31,641
32,515
30,933
2,381
2,899
801
9,317
269
46,600
Invested capital
37,490
37,565
50,313
Cash Flow.com
Exhibit 26: Wal-Marts Accumulated Cash Investments, or Invested Capital (in millions, 4Q99 to present)
2 August 2001
4Q99
1/31/99
1Q00
4/30/99
2Q00
7/31/99
3Q00
10/31/99
4Q00
1/31/00
1Q01
4/30/00
2Q01
7/31/00
3Q01
10/31/00
4Q01
1/31/01
Net sales
Other income, net
Total revenues
40,785
462
41,247
34,717
406
35,123
38,470
440
38,910
40,432
475
40,907
51,394
475
51,869
42,985
462
43,447
46,112
476
46,588
45,676
505
46,181
56,556
523
57,079
Cost of sales
Gross income
32,397
8,850
27,241
7,882
30,123
8,787
31,606
9,301
40,694
11,175
33,665
9,782
36,044
10,544
35,694
10,487
44,852
12,227
6,022
5,888
6,573
6,907
7,672
7,318
7,625
7,918
8,689
2,828
1,994
2,214
2,394
3,503
2,464
2,919
2,569
3,538
10
2,838
59
2,053
59
2,273
59
2,453
59
3,562
83
2,547
83
3,002
83
2,652
83
3,621
55
55
56
56
57
57
58
58
59
59
60
60
68
68
75
75
82
82
2,892
2,108
2,329
2,511
3,621
2,608
3,070
2,727
3,704
Operating, selling and general and administrative

expenses
31
Adjusted EBIT
Adjusted EBITA
Change in LIFO reserve
Change in other reserves
Income Equivalents
31
31
(24)
(24)
(24)
(24)
(24)
(24)
(24)
(24)
(44)
(44)
(44)
(44)
(44)
(44)
Cash Flow.com
Exhibit 27: Wal-Marts Cash Earnings, or Net Operating Profit After Taxes (in millions, 4Q99 to present)
(44)
(44)
2,861
2,132
2,353
2,534
3,645
2,652
3,114
2,771
3,748

+ Tax benefit from minority interest
997
76
19
12
1,104
660
67
19
6
753
740
67
20
30
856
760
111
20
8
899
1,178
113
21
11
1,323
785
116
21
6
928
948
120
24
20
1,112
807
131
26
965
1,152
114
29
1,295
Net Operating After Taxes
1,757
1,379
1,497
1,635
2,322
1,724
2,002
1,807
2,453
2 August 2001
4Q99
1/31/99
1,820
1Q00
4/30/99
1,332
2Q00
7/31/99
3Q00
10/31/99
1,449
1,588
1,338
(14,085)
(12,747)
(1,111)
(2,102)
(3,213)
14,197
4,801
4Q00
1/31/00
2,240
1Q01
4/30/00
2Q01
7/31/00
3Q01
10/31/00
4Q01
1/31/01
1,636
1,914
1,719
2,365
1,769
(1,719)
50
(2,169)
(1,350)
(3,519)
779
(1,910)
(1,131)
(509)
(2,403)
(2,912)
2,454
1,586
5,433
2,850
5,277
Quarterly Changes:
Free Cash Flow
734
(1,172)
(438)
2,258
799
(874)
(75)
1,407
485
(699)
(214)
Cash Flow.com
Exhibit 28: Summary of Wal-Marts Cash Earnings and Investments (in millions, 4Q99 to present)
32

Investment inflow (outflow) in:
Receivables
Inventory + LIFO reserve
(142)
(704)
(627)
(145)
(707)
(678)
(268)
(1,191)
(828)
(229)
(1,713)
(1,029)
(223)
(2,622)
(307)
(111)
(2,707)
(429)
27
(2,165)
(337)
162
(2,446)
(158)
(427)
(1,473)
75

Accounts payable
(1,131)
(1,306)
(1,470)
(2,250)
(2,482)
(2,993)
(2,657)
(2,499)
(2,848)
(1,791)
(1,925)
(3,195)
(308)
(942)
(1,791)
(1,391)
(1,987)
94
2,564
1,759
1,510
2,480
(1,027)
532
994
864
(130)
(2,948)
(3,471)
(16,944)
(18,233)
(17,759)
(18,604)
(5,869)
(5,677)
(7,382)

Free Cash Flow
(2,416)
5,351
2,934
(2,477)
5,633
3,156
(14,380)
5,837
(8,543)
(16,474)
6,189
(10,285)
(16,249)
6,608
(9,641)
(16,124)
6,912
(9,212)
(6,896)
7,377
481
(4,814)
7,508
2,694
(7,512)
7,634
122
2 August 2001
1972
33
Cash
Excess cash
Required cash
Accounts receivable
Inventory
LIFO Reserve
Prepaid Expenses
Curent Assets
Accounts payable
Accrued liabilities
Income taxes payable
Current Liabilities
Net Working Capital
Net P,P&E
Other fixed assets
Fixed Assets
Invested capital
1973
1974
1975
2.0
2.0
0.4
18.5
0.2
21.1
2.2
0.2
2.0
1.1
29.4
0.1
32.6
2.2
0.2
2.0
1.2
41.5
0.3
45.0
3.2
1.2
2.0
1.4
50.6
4.7
0.7
59.4
6.8
1.5
1.1
9.5
8.0
2.4
1.8
12.1
13.3
3.0
1.3
17.7
14.1
4.2
1.4
19.7
11.6
20.5
27.4
39.7
7.1
10.6
0.3
18.0
13.2
13.4
0.2
26.8
14.7
16.3
0.2
31.1
19.2
29.1
0.2
48.4
29.6
47.3
58.5
88.1
Cash Flow.com
Exhibit 29: Wal-Marts Accumulated Cash Investments, or Invested Capital (in millions, 197275)
2 August 2001
1972
1973
1974
1975
78.0
0.7
0.2
78.9
$ 124.9
1.1
0.5
126.4
$ 167.6
1.4
0.4
169.4
$ 236.2
1.8
0.7
238.7
Total COS
Gross income
58.6
20.3
93.1
33.4
123.3
46.0
176.6
62.1
-S, G & A
Operating Expenses
14.3
14.3
23.8
23.8
33.0
33.0
48.1
48.1
Adjusted EBIT
+ Goodwill Amortization
Adjusted EBITA
6.0
6.0
9.5
9.5
13.0
13.0
14.0
14.0

0.9
0.9
1.1
1.1
1.3
1.3
2.4
2.4
6.9
10.6
14.3
16.4
Net sales
Rentals from leased departments
Other income, net
Total Revenues
34
Change in LIFO Reserve

Change in Other Reserves
Income Equivalents
Cash Flow.com
Exhibit 30: Wal-Marts Cash Earnings, or Net Operating Profit After Taxes (in millions, 197275)
4.7
4.7

+ Net Tax Impact From Interest
+ Tax Benefit from Capitalization of Op Leases
- Increase Deferred Taxes
6.9
5.6
2.7
0.2
0.4
3.3
10.6
8.9
4.3
0.3
0.5
0.2
4.9
14.3
11.9
5.7
0.5
0.6
0.2
6.6
21.1
12.2
5.9
0.8
1.1
0.3
7.5
3.6
5.7
7.7
13.6
2 August 2001
1973
1974
1975
35

Receivables
Inventory + LIFO reserve
(0.7)
(11.0)
0.1
(0.1)
(12.0)
(0.3)
(0.2)
(13.8)
(0.4)

Accounts payable
Accrued liabilities
Income taxes payable
1.2
0.8
0.6
5.3
0.7
(0.4)
0.8
1.1
0.1
(8.9)
(6.9)
(12.3)
(8.8)
(4.3)
(17.3)
(17.7)
5.7
(11.9)
(11.2)
7.7
(3.5)
(29.6)
13.6
(16.0)

Free Cash Flow
Cash Flow.com
Exhibit 31: Summary of Wal-Marts Cash Earnings and Investments (in millions, 197375)
2 August 2001
Q1/00
4/30/99
Q2/00
7/30/99
Q3/00
10/29/99
Q4/00
1/28/00
Q1/01
4/28/00
Q2/01
7/28/00
Q3/01
10/27/00
4004
3745
259
2151
289
561
3260
4715
4438
277
2424
336
588
3625
5857
5550
307
2827
374
651
4159
4132
3793
339
2608
391
550
3888
3728
3388
340
2708
441
617
4106
4316
3952
364
2965
442
595
4366
4614
4231
384
3086
424
737
4631
Accounts payable
Accrued and other
Income taxes
Current Liabilities
2641
1247
0
3888
3007
1433
0
4440
3636
1688
0
5324
3538
1654
0
5192
3468
1835
0
5303
3749
1983
0
5732
3950
2141
0
6091
(628)
(815)
(1,165)
(1,304)
(1,197)
(1,366)
(1,461)
536
228
22
786
601
313
44
958
674
398
183
1255
765
483
304
1552
796
483
428
1707
882
483
228
1593
955
483
362
1800
90
248
510
227
339
36
Cash and marketable securities

Excess cash
Required cash
Accounts receivable
Inventory
Other
Curent Assets
Cash Flow.com
Exhibit 32: Dells Accumulated Cash Investments, or Invested Capital (in millions, 1999 to present)
Net Working Capital

Net P,P&E
Other
Fixed Assets
Invested capital
158
143
Source: Company SEC filings and CSFB analysis, note: invested capital does not include long term assets
2 August 2001
Net revenue
Cost of revenue
Gross income
Q1/01
4/30/00
Q2/01
7/28/00
Q3/01
10/27/00
37
5,174
4,012
1,162
5,537
4,347
1,190
6,142
4,788
1,354
6,784
5,414
1,370
6,802
5,498
1,304
7,280
5,788
1,492
7,670
6,036
1,634
8,264
6,506
1,758
Selling, general and administrative

Research, development and engineering
493
74
567
508
82
590
569
91
660
622
98
720
688
103
791
750
117
867
774
124
898
814
126
940
Adjusted EBIT
595
600
694
650
513
625
736
818
Goodwill Amortization
Adjusted EBITA
595
600
694
650
513
625
736
818
4
4
6
6
8
8
10
10
12
12
12
12
12
12
12
12
599
606
702
660
525
637
748
830

+ Net Tax Impact From Interest
+ Tax Benefit from Capitalization of Op Leases
- Increase Deferred Taxes
181
(4)
1
178
186
(7)
2
181
217
(11)
3
209
207
(14)
3
196
175
(34)
4
145
225
(44)
4
185
258
(44)
4
218
289
(51)
4
242
420
425
493
463
380
452
530
588
Interest Expense of Cap O L

Cash Flow.com
Exhibit 33: Dells Cash Earnings, or Net Operating Profit After Taxes (in millions, 1999 to present)
Q4/99
Q1/00
Q2/00
Q3/00
Q4/00
1/29/99
4/30/99
7/30/99 10/29/99 1/29/00
2 August 2001
Q4/99
1/29/99
420
Q1/00
4/30/99
Q2/00
7/30/99
Q3/00
10/29/99
Q4/00
1/28/00
Q1/01
4/28/00
Q2/01
7/28/00
Q3/01
10/27/00
425
493
463
380
452
530
588
332
(105)
227
187
(172)
15
350
(297)
53
139
(297)
(158)
(107)
(155)
(262)
169
114
283
95
(207)
(113)
Quarterly Changes:
38

(27)
(29)
(56)
Free cash flow
364
197
478
411
538
713
246
700
(174)
(254)
(428)
231
(291)
(60)
356
(391)
(34)
841
(602)
239
1,008
(870)
137
569
(920)
(352)
551
(635)
(84)
296
(545)
(249)
Cash Flow.com
Exhibit 34: Summary of Dells Cash Earnings and Investments (in millions, 1999 to present)

NOPAT Inflow (Outflow)
Free cash flow
1,443
1,015
1,566
1,506
1,718
1,683
1,801
2,040
1,761
1,898
1,788
1,436
1,825
1,741
1,949
1,700
2 August 2001
Cash Flow.com
2 August 2001
1
Outstanding Investor Digest. September 24, 1998. Page 41.

Outstanding Investor Digest. September 24, 1998. Page 37.
3 Wolf Bytes 20Earnings are an Opinion, Cash is a Fact, Charles R. Wolf and Bob Hiler, Credit Suisse First Boston
equity research, December 20, 1997.
4 In accounting terms, we start with a firms earnings before interest, taxes, and amortization (EBITA). We then subtract
cash taxesthe amount the company would have paid if it were entirely equity financed, with no interest payments on
its debt to shield the company from taxes. Accordingly, to calculate cash taxes, we first add the tax shield from interest
expense to the income tax provision reported on the income statement. We also have to add back the tax benefit of the
implied interest expense of off-balance sheet debt-equivalents, such as capitalized operating leases. These tax shields
will be equal to the interest expense multiplied by the marginal tax rate. Next, we do an equivalent calculation to add
back the tax impact of non-operating income or expenses to isolate the tax burden of the firms operating income.
Finally, we subtract any increase in the deferred tax balance, since we wish to arrive at cash taxes paid; this difference
represents taxes that have been accrued, but will not be paid until a later period.
5 As a technical detail, note that we calculate cash earnings net of depreciation to measure a companys economic
earnings. To make sure that free cash flow is not understated, we also calculate cash investments to be net of
depreciation. That is, cash investment measures the cash that a company must invest over and above its annual
depreciation. Also, to avoid seasonal fluctuations and quarterly swings, we calculate both figures by summing the
appropriate numbers for the past 12 months.
6In contrast, the New York Times has to invest in physical printing pressesor partner with other newspapersto
expand distribution of its flagship National Edition to other regions. For example, it just announced the expansion of
daily delivery to the non-metropolitan areas of Arizona. See The New York Times Begins Printing National Edition at
Phoenix Print Site. New York Times Company Press Release. http://biz.yahoo.com/bw/990212/ny_the_new_2.html.
(February 12, 1999).
7 Bill Miller's Mutual Fund Forum. http://www.leggmason.com/Funds/fundform2.html. August 12, 1996.
8 One point of note is that Wal-Mart did have three quartersthe nine months from November 1996 and until July
1997in the Super Cash Flow quadrant with cash inflows from earnings and investment. This resulted from a secular
improvement in Wal-Marts ability to generate earnings without tying up so much cash in working capital. Specifically,
over the 12 months ending on April 30, 1997, Wal-Mart reduced cash tied up in current assetssuch as accounts
receivable, inventory, and prepaid expensesby over $600 million, while increasing cash advances from suppliersin
the form of accounts payable and other current liabilitiesby an impressive $1.9 billion. This generated over $2.5 billion
in cash, which more than covered its approximately $1.4 billion investment in new stores, netting an approximately $1.2
billion investment inflow.. Wal-Mart has continued to improve its working capital management, although not to the
extent of generating a cash investment inflow since then.
9 Note that while Amazon is being called the Wal-Mart of the Web, it currently has drastically different cash economics
than Wal-Mart did when its revenues were at a similar run-rate.
10 In the two most recent quarters, Dell has continued to have negative working capital, i.e., its working capital is still
financed by interest-free cash loans from suppliers, customers, and employees. However, perhaps owing to Dells
increased sales to large business accounts with longer sales and payment cycles, the company has actually invested
net cash in its working capital, at least temporarily moving from the Super Cash Flow to the Profitable Buildout
quadrant. We do not believe that this invalidates our knowledge company lifecycle theory, as it represents a startup
cost for Dells new target market, rather than a continuation of growth from its familiar markets.
2
11
Warren Buffetts 1992 letter to shareholders. http://www.berkshirehathaway.com/letters/1992.html.
39
AMSTERDAM ............ 31 20 5754 890

ATLANTA................... 1 404 656 9500
AUCKLAND ................. 64 9 302 5500
BALTIMORE .............. 1 410 223 3000
BANGKOK ...................... 62 614 6000
BEIJING ................... 86 10 6410 6611
BOSTON .................... 1 617 556 5500
BUDAPEST .................. 36 1 202 2188
BUENOS AIRES ...... 54 11 4394 3100
CHICAGO................... 1 312 750 3000
FRANKFURT................. 49 69 75 38 0
HOUSTON.................. 1 713 220 6700
HONG KONG .............. 852 2101 6000
JOHANNESBURG ..... 27 11 343 2200
KUALA LUMPUR.........603 2143 0366

LONDON ...................44 20 7888 8888
MADRID .....................34 91 423 16 00
MELBOURNE .............61 3 9280 1888
MEXICO CITY ..............52 5 283 89 00
MILAN .............................39 02 7702 1
MOSCOW....................7 501 967 8200
MUMBAI......................91 22 230 6333
NEW YORK.................1 212 325 2000
PALO ALTO................1 650 614 5000
PARIS........................33 1 53 75 85 00
PASADENA ................1 626 395 5100
PHILADELPHIA ..........1 215 851 1000
PRAGUE ...................420 2 210 83111
SAN FRANCISCO.......1 415 836 7600

SO PAULO .............55 11 3841 6000
SEOUL ........................82 2 3707 3700
SHANGHAI ...............86 21 6881 8418
SINGAPORE....................65 212 2000
SYDNEY......................61 2 8205 4433
TAIPEI.......................886 2 2715 6388
TOKYO........................81 3 5404 9000
TORONTO...................1 416 352 4500
WARSAW....................48 22 695 0050
WASHINGTON............1 202 354 2600
WELLINGTON ..............64 4 474 4400
ZURICH........................41 1 333 55 55
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2 August 2001

Americas / United States

Cash Economics of Business Models

Cash investments. A company can consume or generate cash by investing different

Exhibit 1: Driver of Cash Earnings and Investments

A companys propensity to generate or consume cash through earnings or investments

current assets like accounts receivable or inventory, or by increasing the credit it

Super Cash Flow

Source: Company data, CSFB estimates.

Cash Economics: Physical versus the Knowledge

Case Study Number One: Barnes and Noble versus Amazon.com

Exhibit 3: Rolling 4Q Normalized Free Cash Flow

Source: Company SEC filings and CSFB estimates.

Exhibit 4: Rolling 4Q Normalized Free Cash Flow

Investm ent O utflow

Investm ent Intflow

Source: Company SEC filings and CSFB estimates.

Case Study Number Two: New York Times versus Yahoo!

Exhibit 5: Rolling 4Q Normalized Free Cash Flow

Investm ent Outflow

Investm ent Intflow

Source: Company SEC filings and CSFB estimates.

Exhibit 6: Rolling 4Q Normalized Free Cash Flow

Investm ent Outflow

Investm ent Intflow

Source: Company SEC filings and CSFB estimates.

The scalability of a knowledge companys business model means that cash

Cash Economics Lifecycle

Cash Economics Lifecycle of the Typical Physical Company

Exhibit 7: Rolling 4Q Normalized Free Cash Flow

Inves tm ent O utflow

Inves tm ent Intflow

Source: Company SEC filings and CSFB estimates.

Exhibit 8: Rolling 4Q Normalized Free Cash Flow

Inves tm ent O utflow

Source: Company SEC filings and CSFB estimates.

Inves tm ent Intflow

Exhibit 9: Cash Economics Matrix Average Physical Asset Oriented Company

Source: CSFB analysis.

Cash Economics Lifecycle of the Typical Knowledge Company

Source: Company data, CSFB estimates.

Exhibit 11: Cash Economics Matrix

Source: CSFB analysis.

Valuation in the Physical versus Knowledge

Price to Earnings Ratio

Initial Cash Investment

Source: CSFB analysis.

Increasing Cash Investment Inflow

Source: Company data, CSFB estimates.

Net Working Capital

Marketing and sales

Net Operating Profit Before Taxes

Net Operating Profit After Taxes

Source: Company SEC filings and CSFB analysis.Note: R&D is expensed.

Quarterly Cash Earnings

Free cash flow

Normalized Cash Investment Inflow (Outflow)

Investment in net working capital

Trailing Twelve Months:

Net Working Capital

3,114.3 3,317.3 3,520.3

Selling and administrative expenses

Change in LIFO reserve

Net Operating Profit Before Taxes