Question

1) Why is FCF so important to investors performing a historical analysis and constructing a forecast? How could positive FCF be distributed to shareholders? To debtholders? In short, what stories could a five-plus year historical FCF review tell?

Answer 1

FCF i.e Free Cash Flow is method of assessing the company's ability to generate a healthy cash flow throughout it's existence in the market. FCF is an critical attribute which investors look at because it projects the companies ability to generate cash after incurring all the capital expenditures. A positive and a healthly FCF will certainly indicate and gives the management the opportunity to increase the value of the company by investing it in profitable avenues further increasing the share price.

A positive FCF will certainly increase the value of the shares which inturn will make the shareholders wealthier and debt holders are sure of receiving their dues on time.

A five year FCF will certainly point at the ease with which the business is growing, generating cash, paying dividends, increasing shareholders value, increasing market capitalization etc.