1.1 The role of current earning and current cash flow in the assessment of future cash flow.
Current earning is define as net income or loss of an entity for the current year. Current earning are the difference between all revenues and expenses on the statement of profit and loss and other comprehensive income. It will presented in statement of financial position until they are transferred into retained earnings.
Current cash flow are reported in the statement of cash flow that showing the cash inflow and cash outflow in the period. The net cash flow for the period can increase or decrease at the end of the period resulting from the three main activities of the business entity which is operating, financing and investing activities. According to Malaysian Financial …show more content…
Bhd. free cash flow for the current year is RM 18, 759, 986 and the amount needed for expansion next year is RM 4, 514, 018. Its show that the amount of free cash flow for the current year is higher than the amount needed for expansion next year. From this we can see that Marco can increase their operation in the future periods. It is because their free cash flow is enough to fund the expansion plan. Therefore, the company might increase the dividend paid to the shareholder.
From this analysis we can see that Marco can be able to success in their investment plan. It was prove when they have enough liquidity to cover any unforeseen future. Marco also has surplus cash than the cash required to run the organization because they have positive free cash flow.
Besides that, positive amount of free cash flow show that company can increase their performance by develop new products, pay dividend to shareholder, buy back stock, reduce debt and others. Usually investors search for the company that have high or improving free cash flow but undervalued share price. This mean the share price will increase