The Research Of The Free Cash Flow Investment Portfolio

The concept Free Cash Flow has put forward and brought to bear in practice for decade, but the theory of it is not perfect, and it not pay more attention to its application in practice. By consolidating various aspects of the research results in the free cash flow, this paper proposes how to calculate the free cash flow in china's accounting standards and the calculation method in the actual operation.The research of this paper is just depends on the research of the K.S.Hackel, and it mainly start wish the financial statement analysis. And we use the data of china's stock market during the 1998-2006 to get the free cash flow date of the companies. Then, we revisited the performance of this kind of invest methods. In order to revisited the performance, we used the data form wind database to get the free cash flow date. And using annual financial statement information, we identify large-capitalization companies with positive free cash flows ,low free cash flow multiples, and low financial leverage. Then combined price to earning ratio and financial leverage, we constructed, and revisited the performance of the portfolio model made by the free cash flow. In order to compare to the free cash flow portfolio, we use the low price to earning ratio to construct the market ratio. And since a portfolio of these companies is found to consistently outperform the market index, our results suggest that the free cash flow anomaly also exists in the China stock market.The first chapter in this paper is to introduce the main thesis of the whole idea, and the purpose of the study and its significance. Chapter two introduces the theoretical basis of the free cash flow investment portfolio. The main course of the chapter three is to introduce the china's market environment as well as the portfolio model construction methods. Chapter four is mainly based on the reward comparison to the free cash flow investment portfolio and the market portfolio. And we can conclude that in china's stock market, the free cash flow portfolio can effectively improve the investment portfolio at beneficial rate.It is worth noting that although the research of the paper is just based on the research of the K.S.Hackel, but it not a copy of their research. In this paper, the selection of index are different form there's. In addition, empirical methods we have introduced is more reasonable then theirs. And more we revisited the investment portfolio returns in more perspective.