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« Cash Analysis: Sources and Uses
Free Cash Flow to the Firm »

Free Cash Flow

In addition to identifying sources and uses of cash, investors are interested in measuring free cash flow. This concept focuses on the cash generated from operations in excess of that needed for reinvestment. Some measures of free cash flow can be determined directly from the cash flow statement.

Free cash flow is an important concept for valuation. Analysts frequently value firms based on the present value of expected future free cash flow. If a firm is not expected to generate free cash flow in the future, it is unlikely to be valuable.

The measure of free cash flow depends on the perspective of the investor doing the measuring. Free cash flow available to the firm represents cash flow available to both debt and equity holders. Free cash flow to equity is what remains after debtholders have received their contractually obligated payments – namely interest.

For more information, see all articles on: Accounting, Adjusting Reported Financial Statements, Financial Statement Analysis, Fundamental Analysis, Valuation

See also:
  • Computing Free Cash Flow to Equity from Free Cash Flow to the Firm
  • Constant Growth Free Cash Flow to the Firm Valuation Model
  • Free Cash Flow as Cash Flow
  • Computing Free Cash Flow to the Firm from the Statement of Cash Flows
  • Computing Free Cash Flow to the Firm from Net Income
    • Technical Analysis Explained : The Successful Investor's Guide to Spotting Investment Trends and Turning Points

    The Intelligent Investor: The Classic Text on Value Investing

    Financial Statement Analysis: A Practitioner's Guide, 3rd Edition

    Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)

    This entry was posted on Tuesday, April 3rd, 2007 at 10:40 am and is filed under Accounting, Adjusting Reported Financial Statements, Financial Statement Analysis, Fundamental Analysis, Valuation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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    Free Cash Flow to the Firm »
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