Free cash flow Research Paper Example | Topics and Well Written Essays - 2500 words - 1

Free cash flow - Research Paper ExampleIt is hence the cash flow that remains after the firm makes investment in property, plant and equipments. Often, financial analysts consider free cash flow to be more efficient in measuring the strength of a business than the cash flow from operating activities. To remain competitive large companies and other forms of businesses will privation to invest in new equipments in order to make its competitive nature. These investments affect the level of free cash flow that the business is able to view as (Yuangchih, 412).This study investigates the ability of Free Cash Flow to predict performance in keen intensive and non-capital intensive industries. (Nunez, 120). Nunez argues that, many financial scholars and researchers drive home concentrate on studying the effectiveness of operating cash flow as a measure of a firms performance although other researchers have proved that free cash flow is a better measure since it greatly considers capit al intensity. Free cash flow as a measure of a firms performance is not easy to manipulate comp atomic number 18d to the other measures such as earnings, Nunez states. He further states that, there are various methods used by different firms in determining their actual free cash flow but there is however no particular guidance given regarding the calculation and this is because its disclosure is not a requirement by the US GAAPs. The few firms that report their free cash flow thusly use the operations based method while others use the income based method (Nunez, 121). Nunez stresses that, Firms that base their calculation on operations use a capital maintenance perspective whereby free cash flow is calculated as cash flow from operating activities less capital that are necessary to maintain the firm at a productive capacity and this observes the guidance provided in the International Accounting Standards Board (IAS 7). The operations based method also uses a perspective