Free Cash flow : Analysis



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What is the baseline for analyzing the free cash flow? How banks analyze it? Do we have any value that defines or helps bank to invest?

2 Answer(s)


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The ideal FCF differs based on the industry.
Its almost always measured as a % of EBITDA. So FCF is mostly declared as 20% of EBITDA or 50% of EBITDA etc.

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Banks also adjust FCF for 1-time transactions, like a sale or acquisition. They will eliminate such impacts on the FCF to get a unbiased understanding.

Basically banks need to see that your FCF is growing and that it is enough to cover your cash liabilities specifically your interest expense and debt principal payments.