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Pablo Fernandez - One of the best experts on this subject based on the ideXlab platform.
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beneficio y flujos el beneficio es una decision discutible pero el Cash Flow es un hecho Cash Flow is a fact net income is just an opinion
Social Science Research Network, 2015Co-Authors: Pablo FernandezAbstract:Spanish Abstract: El beneficio de una empresa es un dato arbitrario supuestas determinadas hipotesis de contabilizacion de gastos e ingresos. Por el contrario, el Cash Flow o flujo (dinero que va de la caja de la empresa al bolsillo de alguien: accionistas, propietarios de deuda,…) es una medida objetiva, una cifra unica no sometida a un criterio particular. El Cash Flow para las acciones (CFac) es el dinero que sale de la caja y llega al bolsillo de los accionistas. El FCF (free Cash Flow) es el CFac de la empresa en el caso de que esta no tuviera deuda. English Abstract: We use three different definitions of Cash Flow: equity Cash Flow (ECF), free Cash Flow (FCF) and capital Cash Flow (CCF). A company's net income is a quite arbitrary figure obtained after assuming certain accounting hypotheses regarding expenses and revenues (one of several that can be obtained, depending on the criteria applied). However, the ex-post Cash Flow is an objective measure, a single figure that is not subject to any personal criterion.
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Cash Flow is a fact net income is just an opinion
Social Science Research Network, 2008Co-Authors: Pablo Fernandez, Camino Del Cerro Del AguilaAbstract:We use three different definitions of Cash Flow: equity Cash Flow (ECF), free Cash Flow (FCF) and capital Cash Flow (CCF). We also answer to the question: When net income is equal to the equity Cash Flow? When making projections, dividends and other payments to shareholders forecasted must be exactly equal to expected equity Cash Flows. May a company have positive net income and negative Cash Flows? Of course: one has only to think of the many companies that file for voluntary reorganization after having a positive net income. This is precisely what happens to the company AlphaCommerce that we show as an example. A company’s net income is a quite arbitrary figure obtained after assuming certain accounting hypotheses regarding expenses and revenues (.one of several that can be obtained, depending on the criteria applied). However, the ex-post Cash Flow is an objective measure, a single figure that is not subject to any personal criterion.
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Cash Flow is Cash and is a fact net income is just an opinion
IESE Research Papers, 2006Co-Authors: Pablo FernandezAbstract:A company's profit after tax (or net income) is quite an arbitrary figure, obtained after assuming certain accounting hypotheses regarding expenses and revenues. On the other hand, its Cash Flow is an objective measure, a single figure that is not subject to any personal criterion. In general, to study a company's situation, it is more useful to operate with the Cash Flow (equity Cash Flow, free Cash Flow or capital Cash Flow) as it is a single figure, while the net income is one of several that can be obtained, depending on the criteria applied. Profit after tax (PAT) is equal to the equity Cash Flow when the company is not growing, buys fixed assets for an amount identical to depreciation, keeps debt constant, and only writes off or sells fully depreciated assets. Profit after tax (PAT) is also equal to the equity Cash Flow when the company collects in Cash, pays in Cash, holds no stock (this company's working capital requirements are zero), and buys fixed assets for an amount identical to depreciation. When making projections, the dividends and other forecast payments to shareholders must be exactly equal to expected equity Cash Flows.
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equivalence of ten different discounted Cash Flow valuation methods
IESE Research Papers, 2004Co-Authors: Pablo FernandezAbstract:This paper shows that ten methods of company valuation using discounted Cash Flows (WACC; equity Cash Flow; capital Cash Flow; adjusted present value; residual income; EVA; business's risk-adjusted equity Cash Flow; business's risk-adjusted free Cash Flow; risk-free-adjusted equity Cash Flow; and risk-free-adjusted free Cash Flow) always give the same value when identical assumptions are used. This result is logical, since all the methods analyze the same reality using the same assumptions; they differ only in the Cash Flows taken as the starting point for the valuation. We present all ten methods, allowing the required return to debt to be different from the cost of debt. Seven methods require an iterative process. Only the APV and business risk-adjusted Cash Flows methods do not require iteration.
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Three Residual Income Valuation Methods and Discounted Cash Flow Valuation
SSRN Electronic Journal, 2002Co-Authors: Pablo FernandezAbstract:In this paper we show that the three residual Income models for equity valuation always yield the same value as the Discounted Cash Flow Valuation models. We use three residual income measures: Economic Profit, Economic Value Added (EVA) and Cash Value Added. We also show that economic profit and EVA are different, although Copeland, Koller and Murrin (2000, page 55) say that economic profit is a synonym of EVA. Specifically, we first show that the present value of the Economic Profit discounted at the required return to equity plus the equity book value equals the value of equity. The value of equity is the present value of the Equity Cash Flow discounted at the required return to equity. Then, we show that the present value of the EVA discounted at the WACC plus the enterprise book value (equity plus debt) is the enterprise market value. The enterprise market value is the present value of the Free Cash Flow discounted at the WACC. Then, we show that the present value of the Cash Value Added discounted at the WACC plus the enterprise book value (equity plus debt) is the enterprise market value. The enterprise market value is the present value of the Free Cash Flow discounted at the WACC.
Sarra Amdouni - One of the best experts on this subject based on the ideXlab platform.
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Ownership structure and investment-Cash Flow sensitivity
Journal of Management & Governance, 2018Co-Authors: Imen Derouiche, Majdi Hassan, Sarra AmdouniAbstract:This study investigates the effect of ownership structure on the use of Cash Flow in financing corporate investments—the investment-Cash Flow sensitivity—in a concentrated ownership context. Using a sample of 6797 French listed firms from 2000 to 2013, results show that investment-Cash Flow sensitivity decreases with the Cash-Flow rights of the controlling shareholder and increases with the separation of its Cash-Flow and control rights (excess control rights). Firms are, thus, less likely to use Cash Flow in investments when the interests of controlling shareholders are aligned with those of minority shareholders. However, they appear to use considerable internal funds for their investments when they have severe agency problems, driven by excess control rights of the controlling shareholders. Overall, our findings help advance the understanding of the role of agency relationship in shaping corporate financial policy.
Guiying Laura Wu - One of the best experts on this subject based on the ideXlab platform.
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investment Cash Flow sensitivities and capital misallocation
Journal of Development Economics, 2018Co-Authors: Chanbora Ek, Guiying Laura WuAbstract:This paper directly estimates the effect of financing constraint on capital misallocation. We provide a simple theoretical framework that links the heterogeneity in investment-Cash Flow sensitivity, a common indicator of financing constraint, to the dispersion of marginal revenue product of capital, a direct measure of allocative inefficiency. Our model shows that the existence of both constrained and unconstrained firms is a sufficient though not necessary condition for capital misallocation. Empirically, we run an error-correction investment model for U.S. Compustat and Chinese manufacturing firms, and for various sub-samples of the Chinese firms. Our estimates on investment-Cash Flow sensitivities imply a 5% and 15% total factor productivity loss respectively for the balanced and unbalanced panels of Chinese firms. Our identification strategy does not require any monotonic relationship between investment-Cash Flow sensitivities and severity of financial frictions, thus is not subject to the Kaplan and Zingales critique.
Imen Derouiche - One of the best experts on this subject based on the ideXlab platform.
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Ownership structure and investment-Cash Flow sensitivity
Journal of Management & Governance, 2018Co-Authors: Imen Derouiche, Majdi Hassan, Sarra AmdouniAbstract:This study investigates the effect of ownership structure on the use of Cash Flow in financing corporate investments—the investment-Cash Flow sensitivity—in a concentrated ownership context. Using a sample of 6797 French listed firms from 2000 to 2013, results show that investment-Cash Flow sensitivity decreases with the Cash-Flow rights of the controlling shareholder and increases with the separation of its Cash-Flow and control rights (excess control rights). Firms are, thus, less likely to use Cash Flow in investments when the interests of controlling shareholders are aligned with those of minority shareholders. However, they appear to use considerable internal funds for their investments when they have severe agency problems, driven by excess control rights of the controlling shareholders. Overall, our findings help advance the understanding of the role of agency relationship in shaping corporate financial policy.
Mingyi Hung - One of the best experts on this subject based on the ideXlab platform.
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an empirical analysis of analysts Cash Flow forecasts
Journal of Accounting and Economics, 2003Co-Authors: Mark L Defond, Mingyi HungAbstract:This study investigates the relatively recent and growing trend in analysts making operating Cash Flow forecasts. We find that Cash Flow forecasts are made for companies with accounting, operating and financing characteristics that are likely to make Cash Flows more helpful in interpreting earnings and assessing firm viability. Specifically, consistent with our expectations, we find that Cash Flow forecasts are more likely to be made for firms: (1) in industries with greater accounting choice heterogeneity; (2) with forecasted earnings losses;(3) with shorter operating cycles; (4) with greater capital intensity; and (5) with higher leverage. These findings suggest that market participants demand Cash Flow forecasts when Cash Flows are relatively more useful in assessing firm value. Supporting this explanation, we also find that analysts make Cash Flow forecasts when current Cash Flows have greater ability, and earnings have less ability, to predict future Cash Flows; when annual earnings have a lower association with stock returns; and when Cash Flow forecast errors are associated with stock returns around the earnings announcement date, but earnings forecast errors are not.
