Numerous measures of future return are available to the business valuation analyst. Although cash flow measures are the most common, the analyst must still decide on a particular cash flow measure to use. One possibility is cash flow from operations, which reflects the cash impact of all operating activities during a time period. Others use free cash flow, a term for which different definitions exist.
The most common definition of free cash flow is cash flow from operations minus cash investments in new assets needed to maintain operations. A less common definition is cash from operations minus cash investments in new assets needed to maintain operations minus debt repayments (this measure is designed to approximate cash available to the new owners).
Other analysts use income rather than cash flow measures. There are many variations here as well: net income as conventionally measured by accounting; earnings before taxes (EBT); earnings before interest and taxes (EBIT); earnings before interest, taxes, depreciation, and amortization (EBITDA); and the like. In some cases, especially if a minority investment is being evaluated, expected dividends is the relevant measure of future return.
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