Free CashFlow calculations

sReq | uTeK

Hi all.

Just trying to understand free cash flow calculations.

I understand its cash flows from operating activities less capital expenditure, but do you also include / deduct cash flows from investing and financing activities.

Also, do you stop calculating free cash flow before you factor in adding or deducting cash and cash equivalents at the beginning of the year.

For instance, after operating expenses less investing and financing my cash flow is negative, is this my FCF or do i have to factor in cash at beginning of the year to get FCF.

TiGeR KiNgS

sReq | uTeK wrote: »

Hi all.

Just trying to understand free cash flow calculations.

I understand its cash flows from operating activities less capital expenditure, but do you also include / deduct cash flows from investing and financing activities.

Also, do you stop calculating free cash flow before you factor in adding or deducting cash and cash equivalents at the beginning of the year.

For instance, after operating expenses less investing and financing my cash flow is negative, is this my FCF or do i have to factor in cash at beginning of the year to get FCF.

'It depends' what you are trying to analyse.

Free Cash Flow is metric used to assess the cash flow generated from purely operating the business.

There are other metrics such as free cash flow to the firm which is a metric used to assess what level of cash can be distributed to Shareholders after all obligations to the business are made.

You need to understand the concept of 'enterprise value' before you look at the cash flow statement