Free Cash Flow: A Powerful Decision-Making Metric - Evening

This course will offer participants the knowledge and ability to use Free Cash Flow as a business management tool to create value for shareholders.

In the first evening, participants will learn why Free Cash Flow is superior to net income in evaluating business performance, and how to use this metric to analyze current and future investment opportunities. In addition, participants will learn how to incorporate cost of capital and return on investment into Free Cash Flow analysis, and how to create and optimize the drivers of Free Cash Flow.

In the second evening, participants will learn how to calculate a company's weighted average cost of capital, analyze budgeting and acquisition opportunities using Free Cash Flow, how to calculate ''Modified Free Cash Flow,'' and how to use Modified Free Cash Flow to analyze strategic investments.

No sessions currently available. Contact client services to get the next available date.
CPE CREDITS
5.0
The course is designed for Chief Financial Officers, Senior Vice Presidents of Finance, Controllers, and accounting/financial analysts. The participants mentioned above all have involvement in areas where cash flow concepts are used, such as measurement of ongoing operations and business valuation.
No advance preparation required.
Students will be able to:
  • Use Free Cash Flow to analyze how their business decisions impact the economic value of the firm.
  • Calculate a company's cost of capital, including the cost fo debt capital, equity capital and the weighted average cost of capital.
  • Use Free Cash Flow to analyze both capital budgeting and acquisition opportunities in order to determine whether those opportunities will create or destroy value for the organization.
  • Qualify a project's terminal value through the use of cash flow perpetuity and constant growth rate techniques.
  • Calculate and compare Modified Free Cash Flow versus the traditional Free Cash Flow, and examine the usefulness of Modified Free Cash Flow in evaluating long-term strategic investments.
  • Understand the use of Free Cash Flow in acquisition analysis and the costs versus benefits of acquisitions.
Knowledge/familiarity with basic concepts of accounting and finance.
Session 1
Introduction to Free Cash Flow
  • Why the attention to Free Cash Flow?
  • What exactly is Free Cash Flow?
  • Characteristics of Free Cash Flow
  • Advantages of Free Cash Flow versus net income
  • How is Free Cash Flow calculated?
  • Relationship between market value and Free Cash Flow
  • Relationship between return on investment and cost of capital
  • Optimal investment horizon
  • How to enhance Free Cash Flow

Free Cash Flow Adjustments

  • Operating adjustments
  • Non-recurring adjustments
  • Cash adjustments
  • Economic adjustments
  • Net operating profit after taxes (NOPAT)
  • Invested capital
  • Symmetry between NOPAT and capital investment adjustments

Free Cash Flow Drivers

  • Operationalizing Free Cash Flow
  • Sub-components of Free Cash Flow
  • Optimization vs. Maximization of Free Cash Flow drivers

Session 2
Review of Free Cash Flow
  • What is Free Cash Flow?
  • How is Free Cash Flow calculated?
  • Relationship between market value and Free Cash Flow
  • Relationship between return on investment and cost of capital
  • Free Cash Flow adjustments

Cost of Capital

  • What is the cost of capital?
  • Sources of capital
  • Characteristics of debt capital
  • Cost of debt capital
  • Characteristics of equity capital
  • Cost of equity capital
  • Capital asset pricing model
  • Weighted average cost of capital

Capital Budgeting Using Free Cash Flow

  • Goals of capital budgeting
  • Benefits of using Free Cash Flow for capital budgeting
  • Numeric example of capital budgeting using Free Cash Flow
  • Incremental analysis using Free Cash Flow
  • Terminal value calculation
  • Cash flow perpetuity method
  • Constant growth rate method
  • Terminal value numeric examples

Free Cash Flow and Interim Financial Results

  • Free Cash Flow versus ''Modified'' Free Cash Flow
  • Relationship between ''Modified'' Free Cash Flow and market value

Strategic Investments

  • What are strategic investments?
  • How does ''Modified'' Free Cash Flow address strategic investments?
  • Numeric example of ''Modified'' Free Cash Flow methodology to analyze strategic investments

Acquisition Analysis Using Free Cash Flow

  • What are the benefits of acquisitions?
  • How is Free Cash Flow used to evaluate acquisitions?
  • What is total value received?
  • What is total value paid?
  • How is incremental synergy value determined?
  • How is acquisition price determined using Free Cash Flow?
  • Numeric example of acquisition analysis using Free Cash Flow

Clients who register for this course will receive a complimentary 4-month subscription to FT.com. The Financial Times is the world's most respected financial newspaper, providing a broad assessment on finance, business and the industrial sector. The move to the electronic version follows an ongoing review of our environmental responsibilities as a global business and as part of the Pearson group. FT.com also has features that are not available in hard copy, such as: Special Reports, Alphaville, editor blogs, education sections and much more! Subscriptions will start within 6-8 weeks of the start of class and are limited to one subscription per client. (Please note: as of May 1, 2011, the electronic subscription replaces the hard-copy 3-month Financial Times subscription.)

Lunch is included for all students taking day classes.