6431968-solution (1)

6431968-solution (1) - Expenditure more than the company...

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Why would a company, typically, have a negative free cash flow and is a negative free cash flow a bad thing? Answer: Free Cash flow is the excess cash that a company earns for its shareholders after meeting all it expenditure and investment requirements. Free Cash Flow = Net Income + Depreciation/amortization- Changes in Working Capital – Capital Expenditure So, from the above explanation we can see that there can be 3 reasons for a firm to have negative cash flow: Negative Net Income (or loss) , high negative Working Capital i.e. high accounts receivables , a high investment in inventory , cash purchases etc. ; and Capital
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Unformatted text preview: Expenditure more than the company has earned. Negative cash flow is not always a bad thing, although there are adverse reasons like ill working capital management or even loss in a particular working year. Negative cash flow may be due to a high capital expenditure which is not a bad thing. A firm capitalizes on this capital expenditure in later years of operations. This capital expenditure helps a company is grow. Moreover, if a company is expansion using its internal funds , it is good for the existing shareholders because their holding is not diluted....
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