Free Cash-Flow

Free cash flow is defined as operating cash flow minus cash flow from investment activities for property, plant and equipment (CapEx). With free cash flow, companies can e.g. Pay dividends, buy back shares or pay back the repayment of the debt. In general, the cash flow shown (cash flow statement) in companies' balance sheets is difficult to manipulate. That is why Finanzoo in FScore weights this key figure (KFCV - course free cash flow ratio) higher than the P / E. For this purpose, the free cash flow is also set in relation to the current exchange rate.


Free Cash Flow to the Firm (FCFF)

In addition to the free cash flow mentioned above, there are several variants for the calculation, which must be differentiated very precisely. Each method has a different perspective and a different message. The basic version of the FCFF is calculated from: net income + non-cash components (e.g. depreciation) + interest expenses - investments in fixed assets - investments in working capital (e.g. inventories). The FCFF takes interest and non-cash components into account based on net income or EBIT. This alone shows that the internal calculation can be carried out with different values. Even more uncertainties arise from future estimates that are gained from the past.


Capital flow

Capital flow refers to the movement of funds between different economic entities such as companies, households, governments, and financial institutions. Capital flow encompasses all inflows and outflows of money within an economy and is an important indicator of the strength and dynamism of an economy.

Capital flows can take various forms. Some examples include:

Direct investments: In this case, a company invests in another company or in a market by establishing a subsidiary or buying stocks.

Portfolio investments: These are investments in securities such as stocks or bonds.

Loans: In this case, funds are lent from one economic entity to another with the agreement that the money will be repaid with interest.

Foreign exchange trading: This involves buying and selling currencies to profit from exchange rate fluctuations.

The level of capital flow can have a significant impact on the economy. A high inflow of capital can promote the growth and development of a country by enabling companies and governments to invest in infrastructure and other projects. On the other hand, an outflow of capital can destabilize the economy and lead to a currency devaluation.

The analysis of capital flow is an important component of financial analysis and planning. For example, companies can track the capital flows between their different business segments to determine where they need capital or where they have excess capital. Investors can analyze the capital flow of a country or industry to make investment decisions or assess risks.

There are various indicators that can measure and represent capital flow, including a country's balance of payments, the net inflow rate of investment funds, and the exchange rate of a currency in relation to other currencies.

Overall, capital flow is an important factor for the economy and can offer both opportunities and risks. Careful analysis and planning of capital flow are therefore essential to make informed decisions and achieve long-term goals.