# Free Cash Flow Calculator

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## 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:

- Find the net income of the company during the period.
- Add the depreciation expense to the net income.
- Determine the change in working capital by subtracting the current period’s working capital from the previous period’s working capital.
- Subtract the capital expenditures incurred during the period.
- 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.