Free Cash Flow

Free cash flow (FCF) is calculated by taking the cash flow from operating activities and deducting the investment in property, plant, and equipment (capital expenditure). The free cashflow formula is

Free Cash Flow Formula

Free cash flow = Operating cash flow – Capital expenditure

Strictly speaking the capital expenditure used in the calculation is the amount required to maintain the growth of the business at the current rate. In practice this figure is not generally available, and it is normal to use the total capital expenditure figure in the financial statements.

The purpose of free cashflow is to see what cash is available (free) from the operations of the business after allowing for cash to maintain the current growth rate. This free cash flow is then available to improve growth by taking advantage of expansion opportunities, to invest in new products, and to reduce debt and pay dividends to equity providers.

Free Cash Flow Calculation

If we look at the basic cash flow statement below, the highlighted elements represent the main components of free cashflow of the business.

Cash Flow Statement and Free Cash Flow
Net income 50,000
Add back depreciation 12,000
Working capital -5,000
Operating activities 57,000
Capital expenditure -30,000
Investing activities -30,000
Debt repayments -10,000
New debt 26,000
New capital 12,000
Financing activities 28,000
Net cash flow 55,000
Opening cash balance 10,000
Closing cash balance 65,000

In the above free cashflow example, the operating cash flow is 57,000, and the amount spent on capital expenditure is 30,000.

The free cashflow is calculated by deducting the capital expenditure from the operating cash flow, which gives FCF of 57,000 – 30,000 = 27,000.

Our free cash flow calculator is available to help you carry out the calculation.

Free Cash Flow November 6th, 2016Team

You May Also Like

Related pages

opposite of unearned revenuecalculation of deferred tax on depreciationindirect material in manufacturing processgearing calculation formulaeom invoicejournal entries for perpetual inventory systemaccounting stockholders equitywhat is payment voucher in accountingfederal income tax payable journal entryhow to calculate selling price based on marginnon profit chart of accounts sampledeferred taxes on cash flow statementworking capital efficiency ratioleverage ratios examplesdefine contrasexcell irrannuity and perpetuity formulasfifo perpetualdeferred rent assetaccounts receivable aging templatecapital lease amortization scheduleretained earning accountaccounting entry for retained earningswip inventorylcm valuationfifo accounting exampleprintable ledger paperdebtor ratiomid year convention depreciationnet present value formula in excelimprest system accountingprove it accounts payable test answersdifference between markup and profit marginaverage accounts payable formuladtl accountingequation for ending inventorycogs formulaassets liability and equitypayment receipt format docrop formulaimpresthow to solve for variable costjournal entry for deferred revenueblank ledger sheetexcess and obsolete inventoryentry for accrued expensequick asset ratio formulaifrs bad debt provisionhow to calculate days in accounts receivableprovisioning in accountingassignment of receivablescalculate simple interest in excelposting journal entries to ledgercapital lease and finance leasereceivables ledgerexamples of factory overheadsmeaning of retained earningwhat is contra assetpresent and future value tablesconsigned inventorymarkup based on cost calculatorcalculate margin excelhow to calculate markuptill float check sheetwhat is the formula for straight line depreciationcapital gearing ratiocalculate stockholders equityis a trademark an intangible assethow to identify debit and credit in accountingdepreciation residual value calculationsingle entry ledger book