Free Cash Flow Calculator







 

What is Free Cash Flow Calculator?

A Free Cash Flow (FCF) Calculator is a financial tool that helps calculate the amount of cash that a company generates from its operations after accounting for capital expenditures. The calculator is used to measure a company’s ability to generate cash that can be used to pay off debt, invest in new projects or distribute to shareholders as dividends.

The Formula for Calculating Free Cash Flow

The formula to calculate Free Cash Flow is as follows:

FCF = (Net Income + Depreciation – Change in Working Capital) – Capital Expenditures

Where,

  • Net Income is the total income generated by the company
  • Depreciation is the decrease in value of assets due to wear and tear
  • Change in Working Capital is the difference in the value of current assets and liabilities between two periods
  • Capital Expenditures is the amount of money spent on buying or maintaining physical assets during the period

Example of Using the Free Cash Flow Formula

Let us consider an example to understand the calculation of FCF. Assume that a company has a net income of $10,000, depreciation of $3,000, change in working capital of $2,000, and capital expenditures of $4,000 during a period. To calculate the FCF, we use the formula:

FCF = ($10,000 + $3,000 – $2,000) – $4,000 = $7,000

In this example, the FCF generated by the company during the period is $7,000.

How to Calculate Free Cash Flow

To calculate the Free Cash Flow, you need to follow these steps:

  1. Find the net income of the company during the period.
  2. Add the depreciation expense to the net income.
  3. Determine the change in working capital by subtracting the current period’s working capital from the previous period’s working capital.
  4. Subtract the capital expenditures incurred during the period.
  5. The resulting amount is the Free Cash Flow generated by the company during the period.

FAQs

What is the significance of Free Cash Flow?

Free Cash Flow is an important measure of a company’s financial health as it indicates the amount of cash that the company generates from its operations after accounting for capital expenditures.

How is Free Cash Flow different from Operating Cash Flow?

Operating Cash Flow measures the cash generated by a company’s operations, while Free Cash Flow measures the cash generated after accounting for capital expenditures.

What does a negative Free Cash Flow signify?

A negative Free Cash Flow indicates that the company is spending more on capital expenditures than it is generating from its operations, which may not be sustainable in the long run.

Author

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