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The concept of represents a going concern's need to use cash generated by operations to invest in renewing existing assets due to obsolecence or condition, as well as investing in additional assets for growth. Cash flow from operations is the critical cash flow concept addressing a business' underlying In agiven timeframe, a company can add to (or consume) cash by selling goods and services. A compary can also use (or generate) cash through buying (or sellingl assets, and through its activities regarding financing with - for instance, all else held equal, issuing bonds would increase cash, and buying back stock would decrease cash. Cash flow from operations (on the statement of cash flows) is "operating cash flow" as computed in many finance textbooks. Cash flow from operations fon the statement of cash flows) minus capital expenditures is a basic computation of . Free cash flows can be calculated for any company: FCFF represents free cash flow lenders' needs have been satisfied and FCFE represents free cash flow lenders' needs have been satisfied. This means FCFE can be viewed as measuring what a company can afford to pay out in for a given time period is the earnings for that period (even if not realized in cash) in excess of the coportunity cost fcommon equifyinvestors' required rate of return at the besinning of the investment period). Assume a shareholders initial investment is $200 million, and the required rate of return on the stockis 8 percent if the company earns $18 million in the course of a yeac, the compamy's residual income for the period is The residual income model states that a mock's value is per share plus the present value of expected future residual earnings. Because compamy management use allowable accounting practices to distort how financial statements reflect economic performance, analysts a detalled knawledge of accrual accounting