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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Free Cash Flows
Hello John,
I wanted to ask one thing, in the free cash flow questions there are normally two types of requirements:
1- The estimation of dividend capacity (free Cash Flows to Equity)
2- The valuation of businesses (Free Cash Flows to Entity)
So, I have noticed that (if I am right though) in all the dividend capacity questions the already given numbers are used to find the free cash flows (and thus the dividend capacity), while in the ‘valuation of business questions’ mostly the numbers (sales and profits) from most recent year are used to forecast the future free cash flows based on historic growth and then the businesses are valuated.
Is it necessary to do these question in the way I have explained? like should we always use already provided numbers in order to find the dividend capacity?
And should we always forecast our cash flows in the ‘business valuation’ questions?
The answer to both question is ‘yes’ (subject of course to what other information is given in the question).