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The case for using free cash flows as the standard for financial health and well-being is restated in Figure 5.
This approach concludes that the assembled assets of the foundry are only worth what free cash flows they can generate as a going concern.
Auditors can also examine their clients' free cash flows. The company's free cash flows could be a piece of evidence when making a preliminary judgment about client risk and in carrying out some of the initial audit planning.
These figures are even more improved in Q1 02, where we've improved our operational free cash flows over the [previous] quarter.
In order to examine the stability of free cash flows, Exhibit 4 also reports each industry's free cash flow coefficient of variation (CV).
Concerning the concept of free cash flows, two points should be emphasized: First, increasing reliance is being placed on free cash flow numbers by a variety of users, including investor analysts, credit analysts, and finance and economics theoreticians.
In a companion piece to his article in the last issue, Robert Howell turns his attention to the importance of free cash flows in determining valuations.
Cash Earnings and Free Cash Flows Managers and investors should focus on "cash earnings" and the reinvestments that are made into the business in the form of "working capital" and "fixed and other (including intangible) investments." The net amount of these cash flows represent the business's "free cash flows."
In a recent study of 25 blue-chip stocks across industries, Howell found that most were severely overvalued at today's prices and that current free cash flows cannot support most companies' current market prices.
SunTrust analyst Tobey Sommer raised his price target on SAIC to $100 and kept his Buy rating, saying the company's integration of Engility could drive its free cash flows higher and making the stock look "cheaper" on cash flow yield valuation basis.
Total free cash held by the industry firms in our research sank to the most recent low during the third quarter of 2017; but they reversed course and have since increased quarterly free cash flows, culminating in a multi-year high at the end of 2018.
Ebitda also fails to account for the annual capital expenditures and working capital requirements of the company, thereby overstating its free cash flows.