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Finance GlossaryFree Cash Flow
Free Cash Flow
Definition of Free Cash Flow
In accounting and earnings reports, free cash flow refers to the amount of money a company has after paying its maintenance expenses, salaries, utility expenses, and other operating expenses as well as capital expenditures.
The formula to calculate free cash flow: Operating Cash Flow − Capital Expenditures
Free cash flow is an important metric, especially for investors because it is a direct indicator of the financial competence of a company. For example, the amount of FCF a company has can decide whether it has enough cash to offer dividends, expand business, buy back shares, etc.
The formula to calculate free cash flow: Operating Cash Flow − Capital Expenditures
Free cash flow is an important metric, especially for investors because it is a direct indicator of the financial competence of a company. For example, the amount of FCF a company has can decide whether it has enough cash to offer dividends, expand business, buy back shares, etc.
Related Terms
Direct Public Offerings
A Direct Public Offering or DPO allows a company to issue shares directly to the public without an intermediary like investment banks. In the process, the company becomes publicly traded.
The cost of a DPO is known to be relatively low compared to an IPO.
Furthermore, the issuer of the DPO has control over the issue price while the paperwork and effort involved is also comparatively low. That said, the company must go through proper regulatory procedures during the process.
The cost of a DPO is known to be relatively low compared to an IPO.
Furthermore, the issuer of the DPO has control over the issue price while the paperwork and effort involved is also comparatively low. That said, the company must go through proper regulatory procedures during the process.
Margin Trading
Margin trading is a strategy that involves borrowing funds from a broker to take bigger positions in stocks, commodities, currencies, futures, or options.
Enterprise Value
Enterprive Value is a metric used to determine the total value of a company. It is valuation technique used by companies to understand how much money they need to pay to acquire another company.
Conversely, Enterprise Value is also used to figure out the amount of money a company can get on selling their business. To calculate the EV of a company, the total market capitalization is combined with the net debt or cash subtracted from debt. The formula to calculate Enterprise Value is:
EV = Market Capitalization + Net Debt
Or
EV = Market Capitalization + Debt - Cash
Conversely, Enterprise Value is also used to figure out the amount of money a company can get on selling their business. To calculate the EV of a company, the total market capitalization is combined with the net debt or cash subtracted from debt. The formula to calculate Enterprise Value is:
EV = Market Capitalization + Net Debt
Or
EV = Market Capitalization + Debt - Cash
Blue Chip Stocks
Blue chip stocks are shares of iconic companies in India that have been leaders of their respective industries for years, if not decades, and have a stellar yet consistent business track record. Example of blue chip stocks in India are: HDFC Bank, TCS, Reliance Industries, Hindustan Unilever, Infosys etc.
Forex Options
Forex options are exchange-traded derivative contracts that give the right but not the obligation to buy or sell a pair of underlying currencies at a pre-agreed price and date. Forex options are also known as currency options.
Every forex option can be split into a call or put option. A forex call option gives the holder the right to buy underlying forex pairs while a forex put option gives the holder the right to sell underlying currency pairs.
In either case, there is no obligation to exercise the contract but there is a pre-agreed price and expiration date attached. In India, forex options are only available for the USD-INR currency pair.
Every forex option can be split into a call or put option. A forex call option gives the holder the right to buy underlying forex pairs while a forex put option gives the holder the right to sell underlying currency pairs.
In either case, there is no obligation to exercise the contract but there is a pre-agreed price and expiration date attached. In India, forex options are only available for the USD-INR currency pair.
Commodity Options
A commodity option is a contract that gives the buyer or seller the right but not the obligation to execute a trade for a commodity like copper, cotton, zinc, and others at a pre-agreed price and date. Commodity options are derivative contracts that require a trader to pay a premium in order to secure the “option”.
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Corporate Office: A-302, The Western Edge I, Off Western Express Highway, Borivali East, Mumbai - 400066, Maharashtra, India. Land Line: 022-43116666.
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