What Is Free Cash Flow?
Free cash flow is the cash flow of a company that is available to its shareholders after all expenses, including capital expenditures, are paid. This measure is important to investors because it indicates the amount of cash that a company has available to pay dividends, buy back shares, and make other investments.
How Do You Determine Free Cash Flow?
There are a few key steps involved in determining free cash flow:
1. Start by calculating net income, which is the company’s total earnings minus any expenses or taxes.
2. Next, subtract any capital expenditures or investments the company has made over the period. This will give you the company’s free cash flow.
3. Finally, compare this figure to the company’s net income from the previous year to see how much free cash flow has increased or decreased. This will help you understand how well the company is performing financially.
Why Is Free Cash Flow Important?
Free cash flow is important because it is a measure of a company's ability to generate cash from its operations. This is important because it can be used to fund the company's operations, repay debt, and make dividend payments to shareholders. A company with a positive free cash flow is in a better position to grow its business and its stock price.
How Do You Use Free Cash Flow?
The use of free cash flow (FCF) is a critical part of financial modelling. FCF is the amount of cash that a company has available to pay dividends, repay debt, and make investments. In order to calculate FCF, you need to know a company's net income, capital expenditures, and changes in working capital.
FCF can be used to measure a company's ability to generate cash flow from its operations. It can also be used to evaluate a company's ability to repay its debt and make investments. FCF is an important indicator of a company's financial health and can be used to make comparisons between companies.
