Is Free Cash Flow Value Relevant? The Case of the U.S. Consumer Discretionary Sector

Abstract

This study attempts to determine whether free cash flow (FCF) is value relevant for the U.S. Consumer Discretionary sector and, if so, which FCF is the most value relevant. The results would help retail investors make better decisions, and may encourage accounting standards setters to require Consumer Discretionary sector companies to use a specific definition of FCF to enhance comparability. Using a sample of 11,640 observations covering the period from 1988 to 2012, the study shows that FCF is not value relevant for the Consumer Discretionary sector. This result is in agreement with some prior research in the literature review.