Principles of Finance · free preview
OCF, Free Cash Flow, and Common-Size Statements
Operating cash flow measures the cash the business generates, free cash flow subtracts capital expenditures to show what remains for dividends, debt repayment, and growth, and common-size statements express every line as a percentage of a base figure so firms of different sizes become comparable.
1. Operating cash flow distilled
Operating cash flow distilled
2. Free cash flow, the surplus that matters
Free cash flow, the surplus that matters
3. Common-size statements
Common-size statements
4. The four statements as one system
The four statements as one system
5. Operating cash flow's question
What question does operating cash flow answer that net income cannot?
6. Computing free cash flow
A firm reports operating cash flow of 500,000 dollars and capital expenditures of 300,000 dollars. What is free cash flow, and what does it represent?
7. Negative free cash flow
A growing firm posts negative free cash flow for three straight years. Which interpretation is most balanced?
8. Building a common-size income statement
What does a common-size income statement express each line as, and why?
9. Reading a common-size balance sheet
A firm's common-size balance sheet shows receivables at 18 percent of total assets while a close competitor shows 8 percent. What is the likely reading?
10. The system of statements
Which statement correctly describes how the four financial statements interlock?
11. The distributable surplus
What three-word term names operating cash flow minus capital expenditures? Answer in lowercase.
12. The normalized income statement base
On a common-size income statement, every line is expressed as a percentage of what figure? Answer with one word.
13. The normalized balance sheet base
On a common-size balance sheet, every item is expressed as a percentage of what figure? Answer with two words.
14. The reinvestment subtraction
What two-word term names the cash invested in long-term assets during the period, subtracted in computing free cash flow? Answer in lowercase.
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