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Authors: Medhat Hassanein (The American University in Cairo (AUC)); Eskandar Tooma (The American University in Cairo (AUC))
Published in: 2006
Length: 6 pages
Data source: Published sources

Abstract

A corporation''s free cash flow to firm (FCFF) is the amount of cash that a firm can pay to investors after paying for all investments to maintain operations as well as those necessary for growth. There is an increasing interest in FCFF as an indicator of the ability of a company to generate cash and profit, since it is tougher to fake compared to earnings which can often be clouded by accounting gimmicks. Despite its vitality as an indicator of growth, in valuating companies and in forecasting future cash flow, FCFF is not required as part of annual financial statement reporting, which include the statement of cash flow. This note aims to propose a simple technique to incorporate free cash flow reporting as part of the periodical statement of cash flow of companies. It will first start with an overview of financial analysis and annual reporting and then narrows the focus to the statement of cash flow and free cash flow.

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Abstract

A corporation''s free cash flow to firm (FCFF) is the amount of cash that a firm can pay to investors after paying for all investments to maintain operations as well as those necessary for growth. There is an increasing interest in FCFF as an indicator of the ability of a company to generate cash and profit, since it is tougher to fake compared to earnings which can often be clouded by accounting gimmicks. Despite its vitality as an indicator of growth, in valuating companies and in forecasting future cash flow, FCFF is not required as part of annual financial statement reporting, which include the statement of cash flow. This note aims to propose a simple technique to incorporate free cash flow reporting as part of the periodical statement of cash flow of companies. It will first start with an overview of financial analysis and annual reporting and then narrows the focus to the statement of cash flow and free cash flow.

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