Whats all about Free Cash Flows - Pretty Interesting !!

Free Cash Flow

Its the cash available for a company to distribute to the creditors and share holders, thus the term free cash flow

Calculating Free Cash Flows - Asset Perspective

Free Cash Flows = After Tax Operating Income - Investments in Assets

Where,

Investments in Assets = Change in Net Working Capital + Change in the Gross Fixed Assets

Change in Net Working Capital = Change in CA - Change in CL ( Non - interest Bearing )

Calculating Free Cash Flows - Financing Perspective

Sum of all the below items

• Interest Paid to the Creditors
• Dividend Paid for Share holders
• Increase / Decrease in the Outstanding Debt
• Issue or repurchase of Stock

Corporate Financial Management - Principles !

1.RISK - RETURN Trade Off -As the risk increases the return increases , Additional Risk are taken when we expect additional return

2.Time Value of Money - The rupee/dollar received today is worth more than a rupee/dollar received in the future

3.Cash is the King of Business, Not the profit

4. Incremental Cash Flows - It is the difference between the cash flows if the project is taken on versus what they will be if the project is not taken on

5.Highly Competitive Market

6.Efficient Capital Markets

7.The Agency Problem - Conflict between the stockholders and the managers

8.Taxes Bias Business Decisions

9.All risk is not equal - Some risk can be diversified but some cannot be diversified

10. Business Ethics

CORPORATE FINANCIAL MODEL

The above diagram depicts the corporate finance model in a simplified way.Professor Srikanth who interacted with us for Financial Reporting and analysis provided this diagram.I loved this diagram!! It beautifully depicts the whole process.He made every session very interesting . He was a person filled with energy !!! I enjoyed reading finance and he gave us an opportunity to analyze FMCG balance sheets !! It was a great learning filled with fun !!!