The most important financial statement in a company for valuation and for any other purpose is the cash flow statement. Especially for valuation, the most commonly used valuation method today is the DCF or the discounted cash flow method. The DCF is nothing but Discounting Future cash flows of the company and figuring out what is the current day value of all the future cash flows of the company. This is done because a company is nothing but the sum of its future cash flows. If a company cannot make profits, it will not make cash flows and, hence, there is no perceived valuation for a company. This is why, hence, the cash flow statement provides a detailed breakdown on how much cash is left over in the company after all kinds of expenses. The cash flow statement has 3 major components; cash flow due to operating activities, cash flow due to investing activities, and cash flow due to investing activities. The net cash flow after all these have been taken into account is what is called a free cash flow and this is the foundation for all the valuation of the company.
Nov 01 2013 10:46 AM
