Free Cash Flow FCF
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Transcript of Free Cash Flow FCF
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Group MemberGroup Member
VijayVijay -- 1111--719719AjinkyaAjinkya 1111--720720TejasTejas 1111--721721
NikhilNikhil 1111--722722MayuriMayuri 1111--723723PoojaPooja 1111--724724
FREE CASH FLOW 1
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Free Cash FlowFree Cash Flow Free cash flow is not "free" in the traditional sense of the word.
Company can generate plenty of free cash flow, but it might not
actually hand it out for free .
A company has left over at the end of the year or quarter after
paying all its employees' salaries, its bills, its interest on debt and its
taxes.
An organization include equity holders, debt holders, preferred
stock holders, convertible security holders, and so on.
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Two types ofcash flow
Free CashFlow toEquity (FCFE)
Free CashFlow for theFirm (FCFF)
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Free Cash Flow to EquityFree Cash Flow to Equity This is a measure of how much cash can be paid to a
company's equity shareholders.
Used by analysts in an attempt to determine the value
of a company.
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Free Cash Flow to FirmFree Cash Flow to Firm
Financial performance that expresses the net amount
of cash that is generated for the firm
Used by investors as part of fundamental analysis.
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Calculating Free Cash FlowCalculating Free Cash Flow
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Free Cash Flow
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Free Cash Flow to FirmFree Cash Flow to Firm
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Free Cash Flow to EquityFree Cash Flow to Equity
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Example
Items Amountinmillions
EBIT 4,664
Depreciation 1,051
Other non-cash adjustment 133
Change in working capital 113
Capital expenditure 3,318
Net debt financing 380
Interest expense 158
Tax rate 38.50%
FCFE = 3,9193,919 3,318 + 380 = 904
FCFF = 3,9193,919 + 158 (1 0.385) 3,318 = 621
39193919 = 4464 (4464 * 0.385) +
1051
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Free Cash Flow Vs. Cash
Flow Statement Cash flow statement does not really reflect what is
available for the company's stakeholders.
Earnings can be easily manipulated. It is not as easy
to manipulate the free cash flow.
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Interpreting free cash flow
Steady increase in FCF Operational efficiency.
Steady decline in FCF decelerating growth and
facing liquidity problems.
In times of uncertainty, Cash Is King
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Why Free Cash Flow Is
soImportant?? Needed for expansion of business
Flexibility in decision making
Useful to do other things
Companies can use their FCF To buy back
stocks
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Some Flaws..
Not immune to manipulation in the accounts
No regulatory standard for determining FCF
Not infallible
Companies can also temporarily boost FCF
The Trick of Hiding Receivables
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Cash: Its the lifeblood of anybusiness.