Correlation Between Free Cash Flow And Business Performance

Free cash flow has been presented and used for more than30years. Free cash flowroughly equal to the cash flows from operating activities, meaning the cash flow tomaintain normal production and operation of the company’s existing capital expenditureminus the remainder cash flows; which take into account the operation of enterprises,investment financing and financial decision-making problems. It is a concept coveringfinancial corporate balance sheet, income statement and cash flow statement, so that it canbe more effective to avoid the traditional indicators such as profits and cash flow fromoperating activities in the evaluation of business performance. Free cash flow for thecurrent study focused on domestic and international validation of the hypothesis of freecash flow. Although that free cash flow for the theoretical and empirical research has hadsome success, due to the sample selection, limitations and other aspects of the researchperspective, there are still some inconsistencies between the relationship of free cash flowand business performance; also, the relationship between the corporate life cycle and cashholdings is aslo an issue corporate investors and managers are closely watched.Based on this, the research would be under the enterprise life cycle perspective, andchoose the metal and nonmetal industry as the research sample, implementing norms andempirical research on the correlation between free cash flow and corporate performance.Theoretical part includes enterprise lifecycle theoretical and division, free cash flowhypothesis, the relationship between free cash flow and enterprise performance, focusingon analysis of over-investment, other discretionary spending arising under the separation ofownership, lead agency costs and thus raise business performance; and from the aboveresearch, the paper draws the conclusion: there is a positive correlation between free cashflow and performance during the growing stage, a first positive and then negativecorrelation with mature business performance, and a negative correlation between thedecline of assumptions; in the empirical part of the paper selected CSI metal and nonmetalindustry companies listed on both the study sample, and its annual report for2009-2012asa source of data, analysis by SPSS statistical sample of listed companies on therelationship between performance and free cash flow at different stages of the regressiontest and validate the hypothesis.Based on the above research, this paper put forward proposals to owners and operatorsof companies at different stages in the hope to be of some help to China’s metal andnonmetal industry companies’ corporate governance, investment and financing analysis.