Free Cash Flow Calculator
Answers the Question
How much money can be distributed to those who have claims on income (bond and stock holders)?
Calculator for Free Cash Flow
What Is the Free Cash Flow?
Free cash flow is a common accounting measure of how much its cash levels are changing. As a general rule, the more cash that a company has, the healthier it is.
Why Is it Important?
- The higher the free cash flow, the more easily a firm will be able to pay dividends.
Formula(s) to Calculate Free Cash Flow
- FREE CASH FLOW = EARNINGS BEFORE INTEREST AND TAXES * (1 - TAX RATE) + DEPRECIATION + AMORTIZATION - CHANGES TO WORKING CAPITAL - CAPITAL EXPENDITURES
Common Mistakes
- Assuming that everyone calculates free cash flow in the same way. Although the formula presented here is the most common, alternative approaches do exist.
- Efforts to maximize for free cash flow may lead to under-investments in potentially profitable endeavors.
- A firm that sells off major assets may boost free cash flow, but provide others with a misleading understanding of long term expectations.