def. Cashflow Statement. A table showing the firm’s cash in and out.

  • D&A addback: you’ve already payed for the factory (un-smearing the cost)
  • CapEx & Salvage: money you’re paying for the capital [=capital expenditure], and cash from selling the capital
  • Change in Working Capital: Recieveables & Payables

e.g. The process of valuing a firm using Free Cash Flows:


  1. Calculate Net Income (excl. interest, tax, etc.) from Income Statement
  2. Calculate Free Cashflow (w. CapEx & Salvage)
  3. Discount future cash flows to get Net Present Value = Firm Value Discount parameter is usually obtained from investments with similar risk profiles, or the WACC formula.

Internal Rate of Return (IRR). It’s another type of interest rate.

  • Too much cash isn’t a good thing, because it means they’re not getting high return on capital.