48
Cash Reinvestment Ratio:
Cash Flows From operating Activities- Dividends
Gross Plant +Investment +Other Assets +Working Capital
Table 2.24: Formula of Cash Reinvestment Ratio
From: Financial Statement Analysis 2007
b) Free Cash Flow
Free cash
flow
is
used as an
indicator of company’s ability to generate cash
after
laying
out
the
money
required
to
maintain
or
expand
the
company
assets (Investopedia,
n.d).
On
the
other
hand,
according
to
Mills and
Yamamura
(1998,p.60)
free
cash
flows
is
playing
a
vital
role
as
it
determines the going concern of the company and also track the opportunity
to
increase
the
shareholder
value.
To
what
we
have
learned
negative
free
cash
flow
does
not
always
indicate a
bad
sign.
A
negative
free
cash
flow
could be a sign that a company is investing in large amount. The company
can
pay
off
in
the
long
run
if
the
strategy
of
investing
in
large
amount
earned a high return.
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