Free Cash Flow

Free Cash Flow

Free cash flow (FCF) is the left over cash a company has after paying for it’s growth and ongoing operations.  Free cash flow growth is another one of our primary indicators used for value stock picking, as it helps us gauge the relative health of a company.  The good thing about free cash flow is that it accounts for outlays of both expenses as well as capital asset purchases. 

How to calculate free cash flow

Learning how to calculate free cash flow is simple, and you can make it even more powerful when you use it together with other powerful value stock picking metrics, once you learn how to calculate ROIC and equity growth.  Free cash flow is calculated by subtracting capital expenditures from operating cash flow:

Free Cash Flow = Operating Cash Flow – Capital Expenditures

Operating cash flow is Net Income + Amortization/Depreciation – Changes in Working Capital

So the full Free Cash Flow formula looks like this:

Net Income + Depreciation/Amortization – Changes in Working Capital – Capital Expenditures
= Free Cash Flow

You can find the numbers for calculating free cash flow on annual or quarterly earnings statements for any public company you are examining.  Net Income and Depraciation/Amortization are on the income statement, working capital and capital expenditures are on the Cash Flow Statement (or Statement of Cash Flows).

Technorati Tags: Asset Purchases, Calculating Free Cash Flow, Capital Asset, Capital Expenditures, Cash Flow Growth, Cash Flow Statement, Depreciation, Earnings Statements, Equity Growth, Fcf, Free Cash Flow, Free Cash Flow Formula, Ongoing Operations, Operating Cash Flow, Outlays, Quarterly Earnings, Relative Health, Roic, Statement Of Cash Flows Example, Value Stock, Working Capital

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Tagged with: Asset Purchases • Calculating Free Cash Flow • Capital Asset • Capital Expenditures • Cash Flow Growth • Cash Flow Statement • Depreciation • Earnings Statements • Equity Growth • Fcf • Free Cash Flow • Free Cash Flow Formula • Ongoing Operations • Operating Cash Flow • Outlays • Quarterly Earnings • Relative Health • Roic • Statement Of Cash Flows Example • Value Stock • Working Capital

Filed under: Value Stocks Investing

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