Return On Free Cashflow
Return on free cashflow, also known as return on capital, is a measure of a company's financial performance that takes into account the amount of cash it generates from its operations. This metric is used to evaluate a company's ability to generate profits from its operations, as well as its overall financial health.
To calculate return on free cashflow, investors first need to determine a company's free cashflow. This is the amount of cash a company has available after it has paid for its operating expenses and capital expenditures. In other words, free cashflow is the cash a company has available to pay dividends, buy back shares, or invest in new projects.
Once the free cashflow has been determined, investors can calculate the return on free cashflow by dividing the company's net income by its free cashflow. The resulting figure is expressed as a percentage and shows how much profit a company is generating for every dollar of free cashflow.
A high return on free cashflow is generally seen as a positive sign, as it indicates that a company is generating a significant amount of profit from its operations. This can be an attractive quality for investors, as it suggests that the company is well-managed and has a strong financial foundation.
On the other hand, a low return on free cashflow may be a red flag for investors. It could indicate that a company is struggling to generate profits from its operations, or that it is not using its free cashflow effectively. In either case, a low return on free cashflow may be cause for concern and could impact a company's stock price.
Overall, return on free cashflow is an important metric for investors to consider when evaluating a company's financial performance. By looking at a company's return on free cashflow, investors can gain a better understanding of its ability to generate profits and make informed decisions about whether to invest in the company.