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Would it be possible for a company to report negative free cash flow and still be highly valued by investors; that is, could a negative free cash flow ever be viewed optimistically by investors? Explain your answer.

Respuesta :

Answer:

Yes, a negative free cash flow can be viewed optimistically by some investors depending on what they are looking for.

Explanation:

A negative free cash flow refers to inability of the business to generate enough cash flow.

This could be seen at face value as a disadvantage but an investor will check the books to know why and that will help to make a more informed decision.

Some companies start out acquiring infrastructure, setting up internal structures, human resources and internal workings of the organization years before proper sales that attract consistent cash flow starts to trickle in.

This pre-operating and initial operating expenses does not reflect well on paper thereby giving a negative free cash flow.

An investor would be optimistic about investing in a company of this sort that has put in place the right conduit to generate and sustain massive cash flow in the nearest future.