scenario,withnegativechangesinnoncashworkingcapital,
thereisnoreasonwhyfirmscannotcontinuetousesupplier
creditasasourceofcapitalintheshortterm.Inthelongterm,
however,weshouldnotassumethatnoncashworkingcapital
canbecomemoreandmorenegativeovertime.Atsomepoint
in thefuture,wehaveto assume eitherthat thechangein
noncashworkingcapitaliszeroorthatpressurewillbuildfor
increasesinworkingcapital(andnegativecashflows).Putin
blunterterms,wecanassumecashinflowsfromchangesin
workingcapital arereasonable in thenearterm butnot in
perpetuity (terminal value).
FROM FIRM TO EQUITY CASH FLOWS
Whereas cashflows to thefirmmeasure cashflows to all
claimholdersinthebusiness,cashflowstoequityfocusonly
oncashflowsreceivedbyequityinvestorsinthatbusiness.
Consequently,theyrequireestimatesofcashflowstolenders
and other nonequity claim holders in the business. In the
narrowest sense, the only cash flow that equity investors
receive from the firmis dividends, and we can build our
valuations around dividends paid. As we will see in this
section,firmsdonotalwayspayoutwhattheycanaffordto
individends.Amorerealisticestimateofequityvaluemay
requireustoestimatethepotentialdividends—thecashflow
that could have been paid out as a dividend.
Dividends
Stockholdersinmanypubliclytradedfirmsreceivedividends
ontheirstock.Thesedividendscanrangefromzerotopaltry
to substantial. One simple measure of how much return
stockholders canexpect to generate from dividends is the