Free Cash Flow Formula & Example

Definition: Free cash flow (FCF) is the cash that a company is able to generate after it pays for capital expenditures such as buildings or equipment.

Formula:
FCF = Operating Cash Flow - Capital Expenditures
Note: Operating Cash Flow is also known as "Net Cash Flow From Operations".

Learn how to calculate free cash flow with the following examples:

Example 1:
CC Company reported $3 million of cash from operations in its cash flow statement and $1 million of capital expenditures for the year, then the company's free cash flow was: $3 million - $1 million = $2 million.

Example 2:
James Ltd has the following data:
Net Cash Flows from operating activities $252,000
Net Cash Flows from investing activities ($100,000)
Net Cash Flows from financing activities ($65,000)
Investment in Plant and Equipment $52,000

Then,
Free cash flow = Net Cash Flows from operating activities - Investment in Plant and Equipment = 252,000 - 52,000 = $200,000

* Next: Operating Cash Flow to Sales Ratio
0 comments: