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An empirical analysis of the relationship between the listing Corporation free cash flow and corporate performance of electric power industry

Author: HanXiao
Tutor: WuShaoPing
School: Capital University of Economics
Course: Business management
Keywords: Free Cash Flow Corporate Performance Power Industry
CLC: F275
Type: Master's thesis
Year: 2014
Downloads: 1
Quote: 0
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Abstract


As a financial indicator, free cash flow has been proposed and applied for almost30years, its financial function has been recognized by more and more scholars. From the company’s view, free cash flow is operating cash flow minus the cash flow to maintain the company’s existing production capacity after the required capital expenditure incurred, it is the maximum amount that can be assigned to the capital providers without affecting the company’s continued development. Thus, free cash flow considered important financial problems of the company, such as business, investment and dividend distribution policy, which can avoid the defect of traditional profit indicators from operating activities effectively, the performance of listed companies. It is a deep meaning, a very practical evaluation.Power industry is the foundational energy industry in our economy. Its operating conditions is related to people’s livelihood."Twelfth Five Year Plan "pointed out the need to continue to optimize the structure of the power industry, and constantly promote the sustainable development of the power industry, actively develop the economy, harmonious modern power industry system. The study found that, compared with other industries, there is plenty of free cash flow in power industry, and the use of this part of cash flow have a great arbitrariness. Therefore, to optimize the performance level of the power industry, the timely attention to its free cash flow situation is of great importance.In view of this, our goal is to analyze the relationship between free cash flow and corporate performance based on collation and analysis. The paper listed companies in China’s power industry as a sample, use its annual report data from2008to2012as reference information to do regression test. The regression results show that the relationship between free cash flow and the company’s performance is roughly a parabola-shaped, which means that venture performance will be improved accompanied by the improve of free cash flow, but when reaches a certain level of the performance, with the continue improve of free cash flow, corporate performance efficiency will decline. Then, we come to the conclusion that respect to the situation of lacking free cash flow or holding over of it, moderate free cash flow for the company’s performance holds the best proposition. Through the study of the relationship between free cash flow and the company’s performance, I think the company’s financial management should enhance the cash flow consciousness, pay close attention to the changes in free cash flow, the inflow and outflow without normal. In order to improve the company’s sustainable development, it should improve the company’s solvency, use legal means to regulate the behavior of operators,ensure the interests of shareholders and ultimately maximize shareholder wealth and achieve the company’s business objectives.

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CLC: > Economic > Economic planning and management > Enterprise economy > Corporate Financial Management
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