The Research On Correlation Between Free Cash Flow, Life Cycle Of Enterprise And Company Performance

As our country’s market reform accelerated, many enterprises are growing. At the same time, they are facing the increasingly fierce competition and the unpredictable risks also increase. Many companies with an amount of free cash suddenly decline and fall in the heyday. The journal, Scientific Investment, survey that the average life expectancy of China’s listed companies is7-8years and the average life expectancy of Chinese small and medium-sized enterprise is3-4years. However, the average life expectancy of American small and medium-sized enterprise is7-8years and the average life expectancy of transnational corporation is40-50years. In the entire life cycle of an enterprise, free cash flow is always essential foundation of its existence and development. As people’s awareness about the status of free cash flow in the development enterprises rise, the conception of "cash is the king" is deeply rooted in people’s heart. Our country’s current downward economy is under pressure. Many companies are facing the pressure of rising labor cost, reducing in external demand. The survival and development of enterprises is more and more difficult. Thus the study on the relationship of enterprise life of free cash flow and performance at different stages is a very realistic and urgent task.This paper uses standard research and empirical research to explore the relationship of the different stages of a manufacturing enterprise life cycle of free cash flow and performance. In the standard research, through sorting and summarizing of the life cycle of enterprise at home and abroad, free cash flow and corporate performance, the present author finds that there are some differences and weaknesses in related researches at home and abroad. And this leads to the research content. At the same time, the overview of related theories, the analysis of the relationship of the enterprise’s life cycle, free cash flow and corporate performance based on the theories provide a strong support for the design of the empirical study model.In the empirical research section, the data of the manufacturing industry in China A-share listed companies in2004-2012is selected as a research sample. First of all, the present author divides the sample of the selected companies into the life stages, according to Dickinson’s cash flow method. Then the author conducts descriptive and statistical regression analysis on the samples of growth, maturity and downturn period respectively, according to the enterprise’s different life stages. Comparing and analyzing the result of the regression and analysis, conclusion can be drawn:(1) During the growth period, free cash flow and corporation performance are positive related;(2) During the maturity period, free cash flow and corporate performance are negative related;(3) During the downturn period, free cash flow is negatively correlated with the corporate performance. Based on the research conclusion, relevant proposals are put forward.