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Given the "noise" in earnings per share, Free Cash Flow may be a better measure of...

Given the "noise" in earnings per share, Free Cash Flow may be a better measure of firm performance.

True OR False

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Answer #1

True.

Earnings per share (Net Income / Shares O/s) does consider few things like interest(Which is fixed) and depreciation(Non Cash Expense) in its calculation of net income which doesn't provide accurate picture business performance. in FCF method of valuing a firm , Depreciation will be added back and interest payment on debt are treated as payment to debt holders while calculating 'Value of firm. thus i would say FCF Valuation is better measure than EPS valuation

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