Question

1. Please select ANY two stocks and determine their free cash flow from 2017 and 2018. (you can find the free cash flows in Yahoo Finance). What inference can you draw from the companies’ free cash flow? Please present your findings in a table.

2. Using the information and formulas from your textbook, please prepare two financial ratios for each stock, using the 2017 and 2018 financial statements, to include: liquidity ratios, asset management ratios, and profitability ratios. You should have a total of six ratios for each stock, per year (two ratios for each category per year). What challenges, strengths, or weaknesses do you see for each company? Please present your findings in a table.

Answer 1

First, we need to know what is free cash flow

n corporate finance, free cash flow (FCF) or free cash flow to the firm (FCFF) is a way of looking at a business's cash flow to see what is available for distribution among all the securities holders of a corporate entity. This may be useful to parties such as equity holders, debt holders, preferred stockholders, and convertible security holders when they want to see how much cash can be extracted from a company without causing issues to its operations.

Free cash flow can be calculated in various ways, depending on the audience and available data. A common measure is to take the earnings before interest and taxes multiplied by (1 − tax rate), add depreciation and amortization, and then subtract changes in working capital and capital expenditure. Depending on the audience, a number of refinements and adjustments may also be made to try to eliminate distortions.