The effect of Free Cash Flow on Delta-V

03/17/13 22:49:00    

By Michael Mealling

For the space folks Free Cash Flow is defined as:

A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt.

For the business folks Delta-V is defined as:

A scalar which takes units of speed. It is a measure of the amount of “effort” that is needed to change from one trajectory to another by making an orbital maneuver. Delta-V is produced by the use of propellant by reaction engines to produce a thrust that accelerates the vehicle.

You can increase the Delta-V of a spacecraft by either increasing its fuel efficiency, increasing the amount of fuel it carries, or using orbital mechanics tricks to slingshot you around big things like planets.

Organizations have their own form of Delta-V. Its their ability to get things done. Growth is achieved by increasing Delta-V. You can increase your efficiency, increase your fuel, or use the orbits of others to slingshot you around.

There is a rumor going around that the next Dragon flight will attempt a vertical landing in the ocean of the Falcon 9.1 first stage and that the next version of the Grasshopper will go to 300K ft. Going from Grasshopper first flight to an operational vertical landing in this amount of time is a perfect illustration of what Free Cash Flow does to an organizations Delta-V.

Free Cash Flow is an organization's Delta-V. The more you do the more FCF you make. SpaceX apparently has enough Free Cash Flow that it can walk and chew gum at the same time. It can run an operational program of Falcon 9 flights, build the Falcon Heavy, and make the Falcon 9 recoverable all at the same time. All thanks for Free Cash Flow. THAT is a virtuous cycle.

NEVER underestimate the Delta-V multiplier of Free Cash Flow.