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David is CEO of New Constructs (www.newconstructs.com), an independent research that specializes in unearthing key insights from the Financial Footnotes of Annual Reports. Having analyzed over 50,000 annual reports and their Financial Footnotes, New Constructs research regularly produces Hidden... More
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  • Free Cash Flow (FCF) And FCF Yield 1 comment
    Jun 24, 2013 5:17 PM

    Free cash flow ("FCF") equals NOPAT minus change in Invested Capital.

    FCF reflects the amount of cash free for distribution to both debt and equity shareholders.

    FCF Yield equals free cash flow/enterprise value.

    The level of FCF does not always reflect the health of a business or its prospects. For example, a large amount of FCF can be a sign that a company has limited investment opportunities and, hence, limited growth prospects. On the other hand, negative FCF can be an attractive indication that a company has more investment opportunities than it can fund with cash from operations. Zero FCF could mean that the company generates just enough cash to internally fund its growth opportunities.

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  • So with a large FCF, they buy back shares or invest in other promising companies or buyout upstart competitors and dismantle/absorb them - seen it happen many times.
    Hard to knock good FCF.
    Even so, I get your points, Thanks.
    26 Jun 2013, 10:43 PM Reply Like
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