Free cash flow, often abbreviated as FCF, is one of the most important concepts in finance and investing. While it’s an incredibly simple concept to understand, many people have trouble defining free cash flow and putting it to good use when making investment decisions. Don’t be one of those people! Learn what free cash flow means and how you can use it to your advantage in any business situation.
An Overview of Free Cash Flow
Free cash flow is a measure of how much cash a company has available after accounting for operating expenses and capital expenditures. This metric is important because it shows how much cash a company has available to pay debts, reinvest in the business, or return to shareholders. To calculate free cash flow, you need to know a company’s operating cash flow and capital expenditures. Operating cash flow is the cash that a company generates from its normal business operations.
Read more about Free Cash Flow Definition here.
How FCF Calculations can be Made
To calculate FCF, you need to know a company’s operating cash flow (OCF) and its capital expenditures (CapEx). OCF is calculated by adding up a company’s cash from operations, cash from investments, and cash from financing. CapEx is the money a company spends on property, plant, and equipment. To get FCF, you subtract CapEx from OCF.
Examples of Using FCF Analysis
1. To calculate FCF, you need to know a company’s operating cash flow and its capital expenditures.
2. You can use FCF to compare companies of different sizes, or to compare companies in different industries.
3. FCF can also be used to compare a company’s performance over time.
4. FCF can be used to assess a company’s financial health, as well as its ability to generate cash flow.
Frequently Asked Questions about Free Cash Flow
1. What is free cash flow? Free cash flow is the money that a company has available after it pays for its operating expenses and capital expenditures. 2. How is free cash flow used? Free cash flow can be used to pay dividends, repurchase shares, or make other investments. 3. Why is free cash flow important? Free cash flow is important because it shows how much money a company has available to reinvest in its business or pay out to shareholders. 4. How is free cash flow calculated?
Example
Check Apple’s Free Cash Flow here.
