Free cash flow is not equal the cash left over at the end of a period.We have to consider the reinvestment needs of the business. Free cash flow does not equal the cash flow from operating activities.Understanding what free cash flow does not mean will help you understand what it means. This cash flow is often referred to as ‘free cash flow’ indicating that the business has met all its obligations (operating payments and capital expenditure payments) and the business is free to do whatever it pleases with this cash flow. Free Cash Flow to the Firm.Įssentially cash flows refer to the cash generated in the business during a specific time period after meeting all business obligations. So here we dig deeper into what cash flows mean with specific emphasis on Free Cash Flow to Equity vs.
But what do we mean by cash flows? Cash flows could mean different things in different contexts! For example: Cash flows will indicated different things in a cash flow statement presented in a financial statement and in a DCF valuation? Even within a DCF valuation cash flows will mean different things when valuing the firm and valuing the equity.
Operating free cashflow driver#
We know that cash flows are a key driver for value creation.
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