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different
perception
toward
the
definition and
how
to
calculate
free
cash
flow.
According to Horngren & Harrison (2007, p.796), free cash flow is
defined as “the
amount
of
cash
available
from
operations
after
paying
for
planned
investments
in
long-term assets”. Free cash flow is calculated using the following formula:
Free Cash Flow
Net Cash provided by operating activities – Cash payments planned for investments in
Plant, equipment, and other long term assets
Table 2.12: Free cash flow 1 calculation
From: Accounting 2007
While according
to Wild, Subrayman and Hasley
(2007, p.389),
the
free cash
flows
are calculated as follows:
Free cash Flow
Cash Flows from operating activities- Net capital expenditures- dividends
Table 2.13: Free cash flow 2 calculation
From: Financial Statement Analysis, 2007
On the other hand, according to Damodaran (2002, p.351), after meeting all the
financial
obligations,
capital
expenditures and
working
capital
needs,
the
free
cash
flow is now defined as free cash flow to equity. The free cash flow to equity is
calculated as follows:
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