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What You Need To Know About MakeMyTrip Limited’s (NASDAQ:MMYT) Cash Situation

MakeMyTrip Limited (NASDAQ:MMYT) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. I will take you through MMYT’s cash flow health and the risk-return concept based on the stock’s cash flow yield, using the most recent financial data. This will help you think about the company from a cash perspective, which is a crucial factor to investing.

View our latest analysis for MakeMyTrip

What is MakeMyTrip’s cash yield?

MakeMyTrip generates cash through its day-to-day business, which needs to be reinvested into the company in order for it to continue operating. What remains after this expenditure, is known as its free cash flow, or FCF, for short.

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I will be analysing MakeMyTrip’s FCF by looking at its FCF yield and its operating cash flow growth. The yield will tell us whether the stock is generating enough cash to compensate for the risk investors take on by holding a single stock, which I will compare to the market index. The growth will proxy for sustainability levels of this cash generation.

Free Cash Flow = Operating Cash Flows – Net Capital Expenditure

Free Cash Flow Yield = Free Cash Flow / Enterprise Value

where Enterprise Value = Market Capitalisation + Net Debt

The business reinvests all its cash profits as well as borrows more money, to maintain and grow the company. This leads to a negative FCF, as well as negative FCF yield, in which case is not a very useful measure.

NasdaqGS:MMYT Net Worth December 3rd 18
NasdaqGS:MMYT Net Worth December 3rd 18

What’s the cash flow outlook for MakeMyTrip?

Can MakeMyTrip improve its operating cash production in the future? Let’s take a quick look at the cash flow trend MakeMyTrip is expected to deliver over time. In the next few years, expected growth for MMYT’s operating cash is negative, with operating cash flows expected to decline from its current level of -US$111.5m. This is unfavourable to its future outlook, especially if capital expenditure heads the opposite direction. Breaking down operating cash growth into a year-on-year basis, it seems like MMYT will face a continued decline in growth rates, from -46% next year, to -55% in the following year.

Next Steps:

Now you know to keep cash flows in mind, I suggest you continue to research MakeMyTrip to get a better picture of the company by looking at:

  1. Valuation: What is MMYT worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether MMYT is currently mispriced by the market.

  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on MakeMyTrip’s board and the CEO’s back ground.

  3. Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.