BU393 Chapter Notes - Chapter 17: Free Cash Flow, Capital Expenditure, Fixed Asset
Document Summary
Intro: buy good companies at cheap prices, cheap companies: market price < fair price. Discounted cash flow valuation: company valuation technique, similar to npv, a (cid:272)o(cid:373)pa(cid:374)(cid:455)"s free (cid:272)ash flo(cid:449)s are dis(cid:272)ou(cid:374)ted at the wacc, pv is the value of the whole company (debt + equity) In periods of declining sales, growth capex is zero by definition but. Cannot be negative: co(cid:373)pa(cid:374)ies (cid:272)a(cid:374)"t add (cid:272)apa(cid:272)it(cid:455) i(cid:374) s(cid:373)all a(cid:373)ou(cid:374)ts. Use a(cid:448)erage g(cid:454) ratio across earlier years or else fcf will be negative if you use the gx ratio greater than 1 in the year of purchase/construction. Free cash flow: free cash flow: amount of money that you would receive at the end of every year if you were the only owner of a company that had no debt. If inventory or accounts receivable increases, it is an investment in nwc: free cash flow identity, free cash flow can go in 3 places, 1) cash account, 2) to shareholders, 3) to lenders.
