FREE CASHFLOW HOW TO

This is the cash at the end of the year, after deducting all operating expenses, expenditures, investments, etc and is available for distribution to all stakeholders of a company (Stakeholders include both equity and debt investors.) On the other hand, free cash flow is the cash that a company is able to generate after spending the money required to stay in business. These expenses are called capital expenditures (CAPEX). However, not all of the cash from operating activities can be taken out of the business because some of it is required to keep the company operational.

The cash from operating activities is the amount of cash generated by the business operations of a company. There is a crucial difference between ‘cash’ versus ‘cash that can be taken out of a business‘, or in accounting terms: cash from operating activities and free cash flow (FCF). If a company is making earnings, it doesn’t mean that it can spend all the income directly. Here you need to understand that not all income is equal to cash. Now, you might be wondering what is so ‘FREE’ about this cash flow and how it is different from the earnings of the company?

It represents the cash that is available for all the investors of the company.

FREE CASHFLOW HOW TO

How to analyze the free cash flow of a company?įree cash flow is the excess cash that a company is able to generate after spending the money required for its operation or to expand its asset base. How to calculate free cash flow of a stock?

Free cashflow