# 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.