Article: Free cash flow

INTRODUCTION

Free cash flow was mentioned recently in an article about the mega-investor Warren Buffet (Fortune Europe Edition No 11, The Oracle of Everything, pp20-30). The purpose of this article is to review that term.

Why do we need measures of cash flow at all? There are hundreds of different ratios that financial analysts can use without ever bothering about cash flow. This article starts by exploring the role of cash flow calculations in general. This is followed by an explanation of free cash flow, with examples from real life to illustrate why it is such an important concept for the financial analyst. Finally, we will attempt to apply the free cash flow concept in a company ...

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