Calculating Free Cash Flow to the Firm: Method #2: Cash Flow From Operations
February 12, 2025
We have studied the various discounted cash flow valuation models in this module. These different models need to be applied in different situations. We have studied these situations as well. However, regardless of which model is being applied, one thing remains constant. In the end, the growth rate of the company plateaus down at a […]
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Free cash flow models can be further categorized into two types. There are certain kinds of models which pertain to free cash flow that the firm as a whole will generate whereas there are others that pertain solely to the perspective of equity shareholders.
These models are quite different from each other. It is therefore essential to understand, when and under what circumstances is one model a better choice than the other. This article will explain the difference between these two types of free cash flow models:
Thus, it is possible to calculate the value of the firm’s equity by an indirect route even if we are not aware of what the free cash flows to that firm’s equity shareholders will be.
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