Differentiate between cash flow and free cash flow.

The major differences between cash flow and free cash flow are as follows −

Cash flow

• 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.

Mandalika

Updated on: 26-Sep-2020

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