Free Cash Flow

Free cash flows are the monies available for distribution to all investors after paying current expenses, taxes, and making the investments necessary for growth.

The statement of cash flow shows the amount of increase or decrease in cash that the company has on hand every quarter. This statement reports what a company pays out each quarter. Most of the time when a company has a major contract the money won’t be received until a later date.

Free cash flow - Cash remaining from operating activities after adjusting for capital expenditures and dividends paid. Full disclosure principle - Accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users. Generally accepted accounting

known as free cash flow (FCF), is useful in gauging a company’s cash flow beyond that necessary to

Constructing Free Cash Flows allows the calculation for NPV, which enables an even comparison of inflows and outflows of the competing projects. EBITDA does not take into account the Income Tax. Unlevered Net Income (ATCF) does not account for the separation of depreciation, capital expenditures, and changes in Net Working Capital.

2) The way a firm chooses between alternate uses of free cash flow is referred to as

FCF is calculated as:EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital ExpenditureIt can also be

The free cash flow method is used to gauge “a company’s cash flow beyond that necessary to grow at the current rate… [to ensure companies] make capital expenditures to continue to exist and to grow” (Drake, n.d.). Calculation of free cash flows utilizes various components, including a firm’s value, cash flow forecasts, a firm’s capital structure, the cost of capital, and/or discounted cash flows.

Butler Capital Partners (Butler) is an investment fund founded in 1990. Butler closed its first private equity fund, European Strategic Fund, in 1991. This first fund was mainly focusing on small family owned enterprises and on divisions of larger companies. Mainly of his first success he closed in 1998 his second fund, Private Equity II, and Butler became one of the largest independent funds in France. With his second fund he would focus on investments in France on a larger scale. On April 29, 1999, a new investment opportunity arose for Butler: Autodistribution (AD). AD is an entrepreneurial firm and has become the largest independent automotive parts wholesaler in France by the end of the 1990s.

2. Magnetronics had $7,380 invested in accounts receivables at year-end 1999. Its average sales per day were $133,614 during 1999 and its average collection period was 55.23 days. This represented an improvement from the average collection period of 58.68 days in 1995.

All this changes made the CFFO give negative results. The Account payable increased to $ 100,332. All this accounts are making the difference in the cash flow. A/R has not had much money in its account $15,840 for 1998 and $18,878 for 1999.

The above formula isolates free cash flows to the firm from earnings before interest and tax (EBIT). It can be noted that FCFF are after tax (1-T) but prior to interest expense. This initial overstatement of due tax is by design; the tax deductibility of interest payments will be accounted for when incorporating the after-tax cost of debt in the weighted average cost of capital (WACC) to determine the present value of free cash flows.

A discounted cash flow analysis measures the value of a company todays based on calculated predications of how much money they will make in the future. This valuation method is used to determine how profitable an investment is. To conduct a DCF analysis, I used future free cash flows predictions ranging from years 2016 through 2026 to get an estimated present value. My ultimate goal in conducting a discounted cash flow analysis for this project is to value to the equity of the stock and find the stock price for the Danaher Corporation.

The final section of the statement of cash flows is the financing section, which shows the dividends paid, the purchases of stock, the net borrowings, and other possible cash flows from financing activities. A positive trend for investors is the fact that dividends paid has increased (even though it is negative to the firm) as well as sale purchase of stock, from 2009 to 2011 and even increased quarterly in 2011. The net borrowings is off an on from 2009 to 2011 possibly because of certain funds needed in particular years. In 2009, it was $5,746,000,000 and in 2010, it was $190,000,000. It shot back up again in 2011, with $5,960,000,000.

| Below is an excerpt from the cash flow statement of a firm for fiscal year 2003: Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of software Tax benefits of employee stock plans Special charges (Gains)/losses on investments Change in operating assets and liabilities: Receivables Inventories Pension assets Other assets Accounts payable Pension liabilities Other liabilities Net cash provided by operating activities Cash flows from investing activities: Payments for plant and other property Proceeds from disposition of plant and other property Investment in software