Differentiate between cash flow and free cash flow.
The major differences between cash flow and free cash flow are as follows −
- Finds operating cash inflow and activities of finance and investments of the business.
- Net cash inflows are calculated.
- Liquidity of company is determined.
- It has broad scope.
- Operating, investing and finance cash flows are used in calculating cash flows.
- It gets difficult to find out cash flow when, both more than one cash and non-cash transactions are taken place.
- Not much time is needed.
- Used in financial accounting.
- Income statement is required for calculation purpose.
Free cash flow
- Finds Prevent value of business.
- Valuation of business (investors) is calculated.
- Financial health of the company is determined.
- Limited scope.
- EBIT, Capital expenditure, working capital are used in calculations.
- Calculation of individual parameters is difficult.
- Depends on available information, time taken is calculated.
- Calculated in DCF model.
- Income statements are required for calculating purpose.
Published on 26-Sep-2020 17:01:08