The Empirical Research On Relevance Between Free Cash Flow And Enterprise Performance

Usually, Enterprise Value is decided on the future ability to obtain Free Cash Flow and the Weighted Capital Cost. Supposed the Weighted Capital Cost is fixed, the more Free Cash Flow enterprises obtain, the higher Enterprises Values will be. The opposition is also established. Therefore, enterprises can enhance their values by promoting to format Free Cash Flow. Meanwhile, Free Cash Flow is the results of enterprises' activities, so there are reasons to believe that the formation of Free Cash Flow is closely related with current Enterprise Performance.However, recently researches about Free Cash Flow focus on the following three aspects: firstly, the concept, the formula and the function of Free Cash Flow are introduced; secondly, Enterprise Value is analyzed and evaluated by Free Cash Flow; thirdly, the Hypothesis of Free Cash Flow is tested. While, researches about the relevance between Enterprise Performance and Free Cash Flow from the formation of Free Cash Flow is blank.This paper explores the relevance between Enterprise Performance and Free Cash Flow by Principal Component Analysis and Pearson Correlation Analysis from the formation of Free Cash Flow and the Food and Beverage Manufacturing Industry is chosen as the sample. In empirical part, two groups are designed. In the first group, 14 profit indicators are chosen. The relevance between the 14 profit indicators and free cash flow is analyzed. It finds that the relevance is not close. Then, further analysis is done and the second research is designed. In the second group, 7 cash flow indicators are chosen. By empirical test, it finds that the relevance between 7 cash flow indicators and free cash flow is close. The majority of these correlation coefficients is larger than 0.5. This shows that there are close relevance between free cash flow and the 7 cash flow indicators. So, the researches prove that Free Cash Flow is the results of current enterprises' activities. At the same time, compared with the results of the first group, it can be known that there is large differences between profit indicators and cash flow indicators. Meanwhile, it also shows that the ability of forming Free Cash Flow is closely related with Earning Quality. According to empirical results, measures and suggestions are given.The innovations of this paper are empirical researches which are about the relevance between Free Cash Flow and Enterprise Performance. Then recommendations are given.