Analytical Approach towards Free Cash Flow V/S Capital Cash Flow

Natika Jain and Sandeep Poddar
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Natika Jain: Sr.lecturer (finance) St.francis institute of mgmt and research Borivili(w),Mumbai
Sandeep Poddar: Lecturer(commerce) Shri rajasthani seva sangh college, Andheri(e), Mumbai

Indian Journal of Commerce and Management Studies, 2011, vol. 2, issue 1, 185-195

Abstract: Free cash flow is the cash generated in a period, for which the firm has no other profitable investment opportunities .Cash that could be paid out to equity or debt holders free cash flows as almost like ‘excess’ cash generated by the businesses. Capital Cash Flow includes all cash flows paid or payable to investors. In this method, Capital Cash Flows are the cash flows available for all holders of the company’s securities equivalent to the equity cash flow after deduction of company’s assets tax. CCFs equal FCFs plus the interest tax shields. Because the interest tax shields are included in the cash flows, the appropriate discount rate is before-tax and corresponds to the riskiness of the assets. Although the FCF and CCF methods treat interest tax shields differently, the two methods are algebraically equivalent.

Keywords: Free cash flow; Capital Cash Flow; Capital expenditure; Kd(Cost of debenture); Cost of Equity (Ke); NWC; TC; Weighted average Cost of Capital (search for similar items in EconPapers)
Date: 2011
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