Comcast Eyes the Eisner Discount

Editor's note: This is a special bonus column for TheStreet.com readers. Arne Alsin's commentary regularly appears on RealMoney.com, where this column appeared on Feb. 26. To sign up for RealMoney, where you can read his commentary every day, please click here for a free trial.

Buying a great franchise that generates cash -- as evidenced by the stream of free cash flow -- is considered good investing. Wal-Mart (WMT Quote), Home Depot (HD Quote) and McDonald's (MCD Quote), for example, generate surplus free cash every day in every quarter, year in and year out.

But it's not enough to invest in great franchises that generate a lot of cash. You need to take it one step further and analyze management's ability to allocate capital. In my view, a CEO's single most important function is allocating capital. Over seven to eight years, on average, a CEO will allocate all of his or her company's capital.

Numbers Don't Lie

Disney (DIS Quote) Chairman and CEO Michael Eisner, who leads one of America's great franchises, is busily lobbying shareholders to keep his job as "Allocator-in-Chief" of Disney's capital. However, if he's talking to shareholders who understand financial statements, he has a problem. Numbers are not malleable. Parse through 10 years of Disney's financial statements and the numbers tell the cold, stark truth about Eisner's capital-allocation record: ...