The level of free cash flows is more usually

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The level of free cash flows is more usually determined from the already prepared accounting information and therefore is found by working back from profits as follows:
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Copyright © ACCAspace.com ACCAspace 中国 ACCA 特许公认会计师教育平台 13 2.Cash based methods
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Copyright © ACCAspace.com ACCAspace 中国 ACCA 特许公认会计师教育平台 14 2.Cash based methods Free cash flow to equity The above approach calculates free cash flows before deducting either interest or dividend payments The free cash flow to equity only can be calculated by taking the free cash flow calculated above and: deducting debt interest paid deducting any debt repayments adding any cash raised from debt issues in practical terms, the free cash flow to equity determines the dividend capacity of a firm
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Copyright © ACCAspace.com ACCAspace 中国 ACCA 特许公认会计师教育平台 15 2.Cash based methods Free cash flow to equity
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Copyright © ACCAspace.com ACCAspace 中国 ACCA 特许公认会计师教育平台 16 2.Cash based methods Free cash flow to equity
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Copyright © ACCAspace.com ACCAspace 中国 ACCA 特许公认会计师教育平台 17 2.Cash based methods Free cash flow to equity
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Copyright © ACCAspace.com ACCAspace 中国 ACCA 特许公认会计师教育平台 18 2.Cash based methods Forecasting growth in free cash flows Historical estimates For example, if the business has achieved growth of 5% per annum each year for the last five years, 5% may be a sensible growth rate to apply to future free cash flows. Analyst forecasts Particularly fro listed companies, market analysts regularly procduce forecasts of growth Fundamental analysis The Gordon's growth approximation(g=rb)can be used to calculate the likely future growth rate, where r is the company/s return on equity (cost of equity) and b is the earnings retention rate. The formula is based on the assumption that growth will be driven by the reinvestment of earnings.
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Copyright © ACCAspace.com ACCAspace 中国 ACCA 特许公认会计师教育平台 19 2.Cash based methods Forecasting growth in free cash flows Historical estimates For example, if the business has achieved growth of 5% per annum each year for the last five years, 5% may be a sensible growth rate to apply to future free cash flows. Analyst forecasts Particularly fro listed companies, market analysts regularly procduce forecasts of growth Fundamental analysis The Gordon's growth approximation(g=rb)can be used to calculate the likely future growth rate, where r is the company/s return on equity (cost of equity) and b is the earnins retention rate. The formula is based on the assumption that growth will be driven by the reinvestment of earnings.
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