Defining Free Cash Flow
- Topics:
- Financial Statements,
- Working Capital
- Tags:
- Cash Flow,
- Finance,
- Operational Accounting
- Source:
- The CPA Journal
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Overview: It is not unusual to pick up an analysts' report, quarterly statement, or annual report and find references to a company's cash flow or free cash flow. But what do these terms really mean? There are many ways to define cash flow and free cash flow, resulting in problems of consistency and comparability. The authors use data from actual companies to illustrate the problems created by different calculations of cash flow. It is time to make better use of the statement of cash flows and derive a more consistent calculation of cash flow and free cash flow. While companies, analysts, and investors realize the importance of cash flow, there is no real consensus on the definition of cash flow or free cash flow. This can lead to considerable misinterpretation when investors are relying on differing cash flow information provided by companies.
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Format: HTML | Date: Jan 2003 | Pages: 1
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