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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.