The Influence Of The Free Cash Flow On The Profitability Of The Enterprise

Treating with the issues of the free cash flow in the enterprise, on the basis of free cash flow theory, this paper first focuses on the judgment of the existence of free cash flow and the reason for its formation, then use the detailed cases as example, analyzes the influence of the existence of free cash flow on the profitability of the enterprise from the aspects such as capital expenditure, income expenditure and financing policies, and finally gets a conclusion that the existence of free cash flow will lower the profitability than the expected level or even cause continuously decreasing, and gives some relative countermeasure and advice.The main works and the potential innovations in this paper are:1. Proposed current ratio,quick ratio,debt ratio in total capital as the substitute indexes to reflect the existence of free cash flow ,further more, found the methods and the evidence of estimation.2. Analysis the main source and the management characteristics of the free cash flow of companies in market in China.3. Illustrated that the free cash flow of companies in market in China is mainly equity free cash flow, and indirectly validated the "preference in equity financing" theory.