Enter the operating cash flow value in currency.
Enter the capital expenditures value in currency.
History:

Explanation

What is Free Cash Flow (FCF)?

Free Cash Flow (FCF) is a financial metric that represents the cash generated by a company after accounting for capital expenditures (CapEx). It is an important indicator of a company’s ability to generate cash and is often used by investors to evaluate the financial health of a business.

Formula for Free Cash Flow:

The formula to calculate Free Cash Flow is:

§§ FCF = Operating Cash Flow - Capital Expenditures §§

where:

  • § FCF § — Free Cash Flow
  • § Operating Cash Flow § — The cash generated from the company’s normal business operations.
  • § Capital Expenditures § — The funds used by a company to acquire or upgrade physical assets such as property, industrial buildings, or equipment.

Why is Free Cash Flow Important?

  1. Investment Decisions: Investors use FCF to assess a company’s profitability and its ability to generate cash, which can be used for dividends, debt repayment, or reinvestment in the business.

  2. Financial Health: A positive FCF indicates that a company has enough cash to cover its expenses and invest in growth opportunities, while a negative FCF may signal financial trouble.

  3. Valuation: FCF is often used in discounted cash flow (DCF) analysis to estimate the value of a company.

  4. Performance Measurement: Companies can use FCF to measure their operational efficiency and effectiveness in managing capital expenditures.

How to Use the Free Cash Flow Calculator?

  1. Input Operating Cash Flow: Enter the total cash generated from operations. This value should reflect the cash inflows from the company’s core business activities.

  2. Input Capital Expenditures: Enter the total capital expenditures. This includes all investments made in physical assets that are necessary for the business operations.

  3. Calculate: Click the “Calculate” button to determine the Free Cash Flow. The result will show you how much cash is available after accounting for capital expenditures.

  4. Clear Fields: If you want to start over, use the “Clear All Fields” button to reset the inputs.

Practical Examples

  • Example 1: A company has an operating cash flow of $50,000 and capital expenditures of $10,000. The Free Cash Flow would be calculated as follows:

    §§ FCF = 50,000 - 10,000 = 40,000 §§

    This means the company has $40,000 available for reinvestment, dividends, or debt repayment.

  • Example 2: If a company has an operating cash flow of $30,000 and capital expenditures of $35,000, the calculation would be:

    §§ FCF = 30,000 - 35,000 = -5,000 §§

    This indicates a negative Free Cash Flow of $5,000, suggesting that the company is spending more on capital investments than it is generating from operations.

Key Terms

  • Operating Cash Flow: The cash generated from a company’s regular business operations, excluding any cash flows from financing or investing activities.

  • Capital Expenditures (CapEx): Funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, and equipment.

  • Positive Free Cash Flow: Indicates that a company has sufficient cash to cover its expenses and invest in growth opportunities.

  • Negative Free Cash Flow: Suggests that a company is not generating enough cash to cover its capital expenditures, which may lead to financial difficulties.

Use the calculator above to input your values and see how Free Cash Flow changes dynamically. Understanding your Free Cash Flow can help you make informed financial decisions and assess the overall health of your business.