ACC-1A Lecture Notes - Lecture 22: Free Cash Flow, Capital Expenditure, Cash Flow
Document Summary
Accrual accounting the method of making economically meaningful measurements of performance and position by recognising economic events, regardless of when cash transactions occur. Normally referred to as individually significant items. Certain circumstances may give rise to the separate disclosure of significant items. Young firms, new start-ups, seek capital to invest in projects, often not generating large amounts of operating cf. Ceases to invest in new projects, only maintains current capacity, repays financing, uses revolving facilities, generates large returns from earlier investments, generates large amounts of free cash flows. Starts to lose profitability, tends to sell projects and not to gain new financing. Free cash flow = cfo capital expenditure (maintenance) Framework for the preparation and presentation of financial statements. The objective of financial reports: provide info on the financial position and performance and cash flows to make economic decisions, to predict future cash flow, financial performance shows: Underlying assumptions: accrual basis, going concern.
