How to Calculate Free Cash Flow of a Company?
A value investor can gain a lot from Discounted Cash Flow Analysis of a company. For first time investors Discounted Cash Flow Analysis will tell the investors that whether the present market value of shares are overpriced or underpriced. Not only in terms of judgment on market price of shares but Discounted Cash Flow Analysis also gives the idea to the investors that “what factor affects the companies market price of stocks”. The factors like sales turnover, profit margins etc. In addition to above the Discounted Cash Flow model also considers the risk free interest rates prevailing in the market, the cost of capital the company pays by borrowing debts. Considering all of the above factors, a particular stocks is valued so as to avoid purchase of any overvalued stocks.
