A Study of the Relationship between Free Cash Flow and Diversification with Firm Performance in Tehran Stock Exchange Listed Companies for the Period: 2006 - 2013 (Case study: Pharmaceutical Industry)

Determining the firm value is one of the important factors in investment. One of the effective factors on the shares value is financial decision-making. The main task of any CFO, is maximizing shareholder wealth and increasing the value of the company, and it is possible when the company is running well. The purpose of this paper is to examine the relationship between free cash flow and diversification with firm performance. Performance evaluation factors are return on equity ratio, return on assets ratio, the proportion of sales, Q Tobin's ratio and net working capital. The statistical population is 21 listed companies in Tehran Stock Exchange from pharmaceutical industry in the period 2006- 2013. In order to determine the relationship between variables, panel data econometrics approach and Eviews software has used. Results indicate that free cash flow does not have a significant relationship with any of the factors of performance evaluation. Also diversification has significant relationship only with Return on assets ratio, and this relationship is negative.