IDEAS home Printed from https://ideas.repec.org/a/aii/ijcmss/v2y2011i1p185-195.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: http://scholarshub.net/index.php/ijcms/article/view/352/343
    Download Restriction: no
    File URL: http://scholarshub.net/index.php/ijcms/article/view/352
    Download Restriction: no
    ---><---

    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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Schauten Marc B. J., 2013. "Three discount methods for valuing projects and the required return on equity," Contaduría y Administración, Accounting and Management, vol. 58(1), pages 63-85, enero-mar.
    2. Magni, Carlo Alberto, 2009. "Splitting up value: A critical review of residual income theories," European Journal of Operational Research, Elsevier, vol. 198(1), pages 1-22, October.
    3. Mike Dempsey, 2013. "Consistent Cash Flow Valuation with Tax†Deductible Debt: a Clarification," European Financial Management, European Financial Management Association, vol. 19(4), pages 830-836, September.
    4. Fernandez, Pablo, 2006. "A general formula for the WACC: A correction," IESE Research Papers D/663, IESE Business School.
    5. Dirk Beyer, 2018. "A matrix approach to valuation and performance measurement based on accounting information considering different financing policies," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 29(1), pages 37-61, March.
    6. Ignacio Vélez-Pareja & Rauf Ibragimov & Joseph Tham, 2008. "Constant Leverage And Constant Cost Of Capital: A Common Knowledge Half-Truth," Estudios Gerenciales, Universidad Icesi, June.
    7. Fernandez, Pablo, 2005. "Financial literature about discounted cash flow valuation," IESE Research Papers D/606, IESE Business School.
    8. Magni, Carlo Alberto, 2010. "Residual income and value creation: An investigation into the lost-capital paradigm," European Journal of Operational Research, Elsevier, vol. 201(2), pages 505-519, March.
    9. Stefan Dierkes & Ulrich Schäfer, 2017. "Corporate taxes, capital structure, and valuation: Combining Modigliani/Miller and Miles/Ezzell," Review of Quantitative Finance and Accounting, Springer, vol. 48(2), pages 363-383, February.
    10. Mario Massari & Francesco Roncaglio & Laura Zanetti, 2008. "On the Equivalence between the APV and the wacc Approach in a Growing Leveraged Firm," European Financial Management, European Financial Management Association, vol. 14(1), pages 152-162, January.
    11. Fernandez, Pablo, 2007. "A more realistic valuation: APV and WACC with constant book leverage ratio," IESE Research Papers D/715, IESE Business School.
    12. Pablo Fernandez, 2011. "How to Value a Seasonal Company’s Discounting Cash Flows," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 27-52.
    13. Pierru, Axel, 2009. ""The weighted average cost of capital is not quite right": A rejoinder," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(4), pages 1481-1484, November.
    14. Demetri Tsanacas, 2022. "Valuation Challenges in High Tech Platform Based Corporations," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 89-100.
    15. Axel Pierru & Denis Babusiaux, 2000. "Coût du capital et étude de rentabilité d'investissement : une formulation unique de l'ensemble des méthodes," Working Papers hal-02437423, HAL.
    16. Mohsen Afsharian & Anna Kryvko & Peter Reichling, 2011. "Efficiency and Its Impact on the Performance of European Commercial Banks," FEMM Working Papers 110018, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    17. Ralf Diedrich & Stefan Dierkes & Hans-Christian Gröger, 2022. "A note on the cost of capital with fixed payout ratios," Review of Quantitative Finance and Accounting, Springer, vol. 59(4), pages 1559-1575, November.
    18. Fischer, Max & Krause, Marko & Lahmann, Alexander & Stimper, Franziska, 2022. "Firm valuation with state dependent COD taxation," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 550-561.
    19. Ansay, Thomas, 2009. "Firm valuation: tax shields & discount rates," MPRA Paper 23027, University Library of Munich, Germany, revised 20 May 2010.
    20. Antonio Tencati & Laszlo Zsolnai, 2009. "The Collaborative Enterprise," Journal of Business Ethics, Springer, vol. 85(3), pages 367-376, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aii:ijcmss:v:2:y:2011:i:1:p:185-195. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mr. Asif Anjum (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.