Question

Using Apple and Bank of America, determine the free cash flow from 2015 and 2016. What inference can you draw from the companies’ free cash flow?

Answer 1

Free cash flows is a a tool useful for financial statement users to understand how efficient was the company in achieving to generate cash after meeting it's operating cashflows and capital expenditure. Thus from the annual reports, we get the following information of the reuqired companies viz,

Free Cash Flows ($)

Year	Apple	Bank of America
2015	70.019 Billion	28.397 billion
2016	53.497 Billion	17.277 billion

Thus we can infer a drop of 23.59% (ie (53.497-70.019)/70.019)*100 in case of Apple Inc and a drop of 39.16% (17.277-28.397)/28.397*100 in case of Bank of America. Thus both the companies have a significant drop in their FCFs. However comparison of both, Apple still was more efficient.