Define the major cash flow concepts, and state one limitation of each.
- Net Income + Amortisation + Depreciation + Depletion = Cash Flow (CF)
Ignores changes in working capital and non-cash items.
- Cash Flow from Operations (CFO)
It’s not a free cash flow concept.
- Free Cash Flow to Equity (FCFE)
Very variable metric, can be negative, but a good metric for steady companies.
- Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA)
Similar to CF (number 1 above) in that it ignores changes in working capital and non-cash items.
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