What does having Free Cash Flow do for a corporation and how may it be used?

Expert Solution

Free Cash Flow = Operating Cash Flow - Capital Expenditure.
Free cash flow is a important measurment, to check how company is effeicient for generating cash. Free cash flow is calculated after all capital expenditure or funding operations to payment of dividend or Share buyback. Its measure a company financial performances.
Free Cash flow is a important factor for valuation of a company. Most of the investors use free cash flow approach where merger and acquistion going to be happen or the management has the control of it. Free cash flow approach used where DDM (dividend discount model approach is not applicable)
Free cash flow used to decide about the future vanture that will help for improve the shareholders value.

Free cash flow are of two types-

Free cash flow to firm
Free cash flow to equity

I hope this clear your doubt.

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jeff jeffy answered 2 years ago

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