Shareholders’ Value Creation:Free Cash Flow Perspective

To create value for shareholders is the goal of business operations.The ability to dividends is an important measure of shareholder value creation.At present,capital markets pay more and more attention to cash dividends.However,most of the judgments about the ability of shareholders to create value of an enterprise relate to net profit and cash dividends.There is a clear oversight of this connection.Because it is very likely to exist that when the net profit of the enterprise is positive but the real lack of free cash flow still carries out cash dividend,the situation shows that the enterprise does not have the ability to create value for the shareholders,can not create free cash flow to pay the shareholders return on investment,but rather by returning the amount raised from financing to shareholders.This will undoubtedly be a fake"Ponzi dividend".Therefore,in this case,simply thinking of creating a net profit means creating value,it is clear that companies that have the above phenomenon will also be included.Therefore,based on the free cash flow perspective,this paper argues that only the cash dividend of an enterprise comes from the free cash of free cash flow and can create a positive cash value addition to the daily free cash flow necessary for the enterprise to have the ability to create value for shareholders.This article adopts the case study method,select the LeTV and Gree two enterprises for positive and negative case comparative analysis.The conclusion shows that in the past years,LeTV creats net profits and makes dividends,but in reality the lack of free cash flow perennial,the dividends are"Ponzi dividend",do not have the ability to dividends can not create value for shareholders.Subsequently,the development of LeTV also confirmed the conclusions of this article.While Gree is indeed profitable,it also creates ample free cash flow to return shareholder returns while guaranteeing a high dividend,script bonus and ability to create value for shareholders in the year in which cash outflows continue.This also shows that,in addition to assessing the value creation ability of shareholders beyond the net profit,more attention should be given to the nature of free cash flow.In this paper,we compare the positive and negative cases of LeTV and Gree,and put forward suggestions for their respective situations,but also put forward separately for the internal and external environment of the enterprise.Free cash flow budget control should be implemented to realize dynamic management of free cash flow.Free cash flow performance appraisal system,strengthening the role of independent directors to play to avoid the absolute majority of shareholders the right to speak and the implementation of free cash flow disclosure supervision,strengthening debt constraints and the "Ponzi dividends"regulation and other measures to circumvent the issue of free cash flow agency to improve the use of free cash flow Efficiency,so that enterprises arouse the importance of free cash flow,the real free cash flow from the realization of the goal of creating value for shareholders.