7 Constructing Cash Flows
31 Pages Posted: 14 Feb 2006
Date Written: February 10, 2006
This is a course material from the book Investment Decision Making. For Firm and Project Valuation. The book is originally in Spanish and is untitled as Decisiones de inversión. Para la valoración financiera de proyectos y empresas.
In Chapter 7 we mention different approaches for firm valuation. We calculate the proper cash flows for valuing a project or firm, derived from the financial statements. In particular we construct the free cash flow, FCF, the cash flow to equity, CFE, the cash flow to debt, CFD and the cash flow for the tax savings, TS. We use the direct method and derive the cash flows from the cash budget and the indirect method using the Income Statement and the Balance Sheet. As we present these different approaches in order that reader could pick the easiest one.
Note: Downloadable document is in Spanish.
Keywords: Cash flows, free cash flow, cash flow to equity, cash flow to debt, tax savings
JEL Classification: G31
Suggested Citation: Suggested Citation