Drop Down Boxes:

1. Market, Accounting, Replacement

2. Net, Free, Operating

3. Net operating working capital, Net working capital, long-term debt

4. External, Internal

5. Spot, Capital, Exchange

Accounting for Financial Management: Free Cash Flow The focus on traditional financial statements is -Select data rather than cash flow. However, cash flow is important to investors, managers, and stock analysts. Therefore, decision makers and security analysts need to modify financial statement data provided to them. An important modification is the concept of free cash flow (FCF). Many analysts regard FCF as being the single and most important number that can be developed from the income statements, even more important than net income. The equation for free cash flow is: FCF = EBIT(1-T) - Net Investment in Operating Capital -Select- cash flow is the cash flow actually available for payments to investors (stockholders and debtholders) after the company has made investments in fixed assets, new products, and -Select- . A negative FCF means that the company does not have sufficient -Select- v funds to finance its investments in fixed assets and working capital, and that it will have to raise new money in the -Select- v markets to pay for these investments. Negative FCF is not always bad. If FCF is negative because after-tax operating income is negative this is bad, because the company is probably experiencing operating problems. Exceptions to this might be startup companies, companies incurring significant expenses to launch a new product line, and high-growth companies with large capital investments