Asked by Aliyah Grant on Jun 14, 2024
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The "free cash flow valuation approach" expresses current stock price as the discounted present value of expected future distributable cash flows.
Free Cash Flow Valuation Approach
A method of valuing a business by estimating the cash that can be generated after accounting for capital outlays necessary to maintain or expand the asset base.
Present Value
A calculation that determines the current worth of a future sum of money or stream of cash flows given a specified rate of return.
Distributable Cash Flows
The amount of cash flow available to be distributed to security holders, often used in the context of REITs and master limited partnerships.
- Discern the relevance of free cash flow in the appraisal of investments and strategic decision-making.
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Learning Objectives
- Discern the relevance of free cash flow in the appraisal of investments and strategic decision-making.
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