Definition of Free Cash Flow: Free cash flow is cash flow to a firm in excess of that required to fund all projects that have positive net present values when discounted at the relevant cost of capital.

Free cash flow can be a source of principal-agent conflict between shareholders and managers, since shareholders would probably want it paid out in some form to them, and managers might want to control it, e.g. to use it for unprofitable projects, for perquisites, to make acquisitions, to create jobs for friends and allies, and so forth. A possible partial solution to the conflict for the shareholders is for the company to have heavy debts on which frequent, heavy payments are due. Those payments keep the managers focused on delivering consistent revenues and clear out the extra cash. (Econterms)

Terms related to Free Cash Flow:
None

About.Com Resources on Free Cash Flow:
None

Writing a Term Paper? Here are a few starting points for research on Free Cash Flow:

Books on Free Cash Flow:
None

Journal Articles on Free Cash Flow:
None

<Return to Main Page>