The Relationship between Free Cash Flow and Sustainable Earnings with Growth Opportunities

Free cash flow is the cash surplus that can be divided among investors after investment in fixed assets and working capital. Regarding sustainable earnings, the earnings which is not from unusual and unexpected operations is more sustainable. In other words, sustainability and reproducibility of earnings is defined as sustainable earnings. Purpose of growth opportunities is the ratio of market value to book value of equity. The purpose of this study is to evaluate the relationship between free cash flow and sustainable earnings with growth opportunities. This practical descriptive study used correlation by library method to extract data. Using Cochran formula, 110 companies active during 2008 to 2012, say 550 company-year, were selected as samples. Eviews 7 and Stata 11 were used to test hypotheses. Modified Wald was used for heteroscedasticity of the disturbance terms and Durbin-Watson test in 5% error. Findings show a significant positive relationship between free cash flow and sustainable earnings and growth opportunities.