1. Why is FCF so important to investors performing a historical analysis and constructing a forecast? How could positive FCF be distributed to shareholders? To debtholders? In short, what stories could a five-plus year historical FCF review tell?
2. With respect to a balance sheet with categories Assets, Liabilities, and Equity, construct a simple mathematical equation that links the three. How is the Income Statement different from the Statement of Cash Flows? How does accrual accounting partially explain this? Which one is the most important to discerning the company’s true operating story and then forecasting its future prospects?