Abstract:
Purpose
In the light of agency theory, the concept of Free Cash Flow was introduced by (Jensen, 1986)
since then it is been studied in different context. Free Cash Flow is basically the cash left on
hands for investors after company make enough investment in both fixed asset and working
capital to ensure its operation. Whereas, term Corporate Valuation is referred to the process of
determining economic value for a business. Literature suggest that FCF is the one of the
methods which can help in evaluating intrinsic value ofa firm. Thus, the objective ofthis paper
is to explain and highlights the usage of Free Cash Flow in the Corporate Valuation ofsugar
sector of Pakistan. And to examine the impact of FCF on Market Value of Stock of Sugar
Sector of Pakistan.
Methodology & Design
A case study under a descriptive research is carried forward to explain the usage of Free Cash
Flow in the Corporate Valuation of Sugar Sector of Pakistan. Through this study, the intrinsic
value of JDW Sugar Mills Limited has been calculated. Moreover, other 5 companies listed
within the same sector were given regards to investigate the relationship’s significance
between Free Cash Flow and Market Value of Stock of Sugar Sector of Pakistan. This paper
is based on Quantitative approach to extract the data from Pakistan Stock Exchange website
and from financial statements of the companies between the year 2012-2019 for corporate
valuation and between year 2015-2019 for testing hypothesis. E-views software is also used to
determine the outcome of the study. It is an applied research which will provide insight to
investor and will benefit in both academically and professionally.
Findings
dy indicates that the intrinsic value ofJDW Sugar Mills Limited on 30- The finding of the stu
Sep-2019 is Rs 227.24 whereas, it’s Market Value on 30-Sep-2019 stands on Rs 319.00 which
shows that firm is fairly priced. Additional to it, the value of F-statistics is equal to 0.361557 And P value is equal to 0.552480 which argue that the impact of Free Cash Flow on Market
Value of Stock of Sugar Sector of Pakistan cannot be investigated in isolation as it will result
in model insignificant. However, based on prior studies Market Value of Equity can be
computed from Free Cash Flow.
Limitations
The absolute reliability of this study depends on the secondary data. Due to time constraints
value of stock price was taken from market where as FCF was computed for testing hypothesis.
Model insignificant is another limitation of this study
