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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Natika Jain & Sandeep Poddar, 2011. "Analytical Approach towards Free Cash Flow V/S Capital Cash Flow," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 2(1), pages 185-195, January.
    • Handle: RePEc:aii:ijcmss:v:2:y:2011:i:1:p:185-195
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    References listed on IDEAS

    as
    1. Enrique R. Arzac & Lawrence R. Glosten, 2005. "A Reconsideration of Tax Shield Valuation," European Financial Management, European Financial Management Association, vol. 11(4), pages 453-461, September.
    2. Isik Inselbag & Howard Kaufold, 1997. "Two Dcf Approaches For Valuing Companies Under Alternative Financing Strategies (And How To Choose Between Them)," Journal of Applied Corporate Finance, Morgan Stanley, vol. 10(1), pages 114-122, March.
    3. Fernandez, Pablo, 2002. "Valuation Methods and Shareholder Value Creation," Elsevier Monographs, Elsevier, edition 1, number 9780122538414.
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