Free Cash Flow and Dividends

[csl123]

Or does this mean to say, it's very hard to apply DCF valuation to real estate developers and so, just stay away from that form of computation?

Asset-base approach is sometimes used to value real estate companies.

Restate assets and liabilities to current values for net asset value (RNAV)
–Restate individually (discrete valuation) or collectively (collective valuation)
–Value of assets derived from
1) cost of replacement with identical or equivalent
2) May also be derived from future generating income potential or liquidation value.
–Often done by valuation experts. (But beware of their valuation)

[csl123]

Hi guys, have a newbie question about free cash flow and would appreciate some help in the calculation of free cash flow.

From various sources, free cash flow is commonly explained as the amount of cash flow generated after the company has paid its expenses and reinvested money in the form of capital expenditures.

And so a convenient formula used to generate FCF would be FCF = Net Cash Flow from Operations (CFO) - Capital Expenditures.

However, in financial statements, dividends paid out to shareholders can be accounted for either under Operating Activities or Financing Activities.

So my burning question is whether dividends should be included in the calculation of free cash flow, i.e. whether should dividends be considered a form of "capital expenditure? After all, if a company has a history of dividend payments and investors have invested in the company for its consistent dividend payout, it cannot easily reduce or completely eliminate them.

This seems rather important to me because the impact of dividends in the FCF calculation can be rather large percentage wise for most companies.

Any opinions with strong reasons???

It depends on accounting standard used. What is important is to make your own adjustment to the cashflow statement for FCF computation.

Under U.S. GAAP, SFAS 95:

Dividends paid by a company to its shareholders are classified on the cash flow statement under cash flow from financing. The dividends received by a company from its investments are classified as cash flow from operations. All interests received and paid by or to a company are classified as cash flow from operations.

Under IFRS:
Dividends paid by a company to its shareholders, dividends received by a company from its investments and all interests received and paid by or to a company can be classified as either cash flow from financing or cash flow from operations.