Free Cash Flow (FCF) Calculator

Calculate the free cash flow of a company over a specific period.

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What is Free Cash Flow (FCF)?

Free Cash Flow (FCF) is the cash generated by a company after accounting for capital expenditures needed to maintain or expand its asset base.

FCF is an important measure as it shows how much cash is available for distribution among all the securities holders of a corporate entity. It is calculated by taking the operating cash flow, subtracting capital expenditures, and adding back depreciation.

Free cash flow is crucial for assessing a company’s financial health, as it indicates the ability to generate cash after necessary investments. Positive FCF allows a company to pursue opportunities that enhance shareholder value, such as paying dividends, repurchasing shares, or investing in growth initiatives.

Investors often look at FCF as a key indicator of a company’s profitability and efficiency, making it a vital metric in financial analysis.

Free Cash Flow (FCF) Formula

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Operating Cash Flow} &= \mathrm{OCF}\newline\text{Capital Expenditures} &= \mathrm{CAPEX}\newline\text{Depreciation} &= \mathrm{D}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Free Cash Flow} = \mathrm{FCF} \newline = \mathrm{OCF} - \mathrm{CAPEX} + \mathrm{D}\end{gather*}

Free Cash Flow (FCF) Calculation Examples

Example 1

A company reports an operating cash flow of $500,000 for the year. They have made capital expenditures of $200,000 for new equipment and have a depreciation expense of $50,000.

Let's calculate the free cash flow for the company:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Operating Cash Flow}\space(\mathrm{OCF}) &= \mathrm{{\$}500{,}000}\newline\text{Capital Expenditures}\space(\mathrm{CAPEX}) &= \mathrm{{\$}200{,}000}\newline\text{Depreciation}\space(\mathrm{D}) &= \mathrm{{\$}50{,}000}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Free Cash Flow}\space(\mathrm{FCF})\newline\begin{aligned}&= \mathrm{OCF} - \mathrm{CAPEX} + \mathrm{D}\newline&= \mathrm{{\$}500{,}000} - \mathrm{{\$}200{,}000} + \mathrm{{\$}50{,}000}\newline&= \mathrm{{\$}300{,}000} + \mathrm{{\$}50{,}000}\newline&= \mathrm{{\$}350{,}000}\end{aligned}\end{gather*}

This indicates that the free cash flow for the company is $350,000, which can be used for various purposes such as reinvestment, paying dividends, or reducing debt.

Example 2

A technology company reports an operating cash flow of $750,000 for the fiscal year. They have invested $300,000 in new data centers and equipment, and their financial statements show a depreciation expense of $80,000.

Let's calculate the free cash flow for this technology company:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Operating Cash Flow}\space(\mathrm{OCF}) &= \mathrm{{\$}750{,}000}\newline\text{Capital Expenditures}\space(\mathrm{CAPEX}) &= \mathrm{{\$}300{,}000}\newline\text{Depreciation}\space(\mathrm{D}) &= \mathrm{{\$}80{,}000}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Free Cash Flow}\space(\mathrm{FCF})\newline\begin{aligned}&= \mathrm{OCF} - \mathrm{CAPEX} + \mathrm{D}\newline&= \mathrm{{\$}750{,}000} - \mathrm{{\$}300{,}000} + \mathrm{{\$}80{,}000}\newline&= \mathrm{{\$}450{,}000} + \mathrm{{\$}80{,}000}\newline&= \mathrm{{\$}530{,}000}\end{aligned}\end{gather*}

The resulting free cash flow of $530,000 demonstrates the company's ability to generate cash after accounting for significant investments in infrastructure. This FCF can be used for further expansion, research and development, or returned to shareholders through dividends or share buybacks.

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