Posted on : March 13, 2017
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Category : Finance
Calculating Free Cash Flow: The ways to calculate free cash flow (free cash flow to term) for a business are pretty easy:
- Free Cash Flow = Sales Revenues – Operating Costs and Taxes – Required Investments in Operating Capital: In this equation, sales revenues are taken from the business income statement, as are operating costs and taxes. Investments in new operating capital show up as increases in fixed assets on the business balance sheet.
- Free Cash Flow = Net Operating Profit After Taxes (NOPAT) – Net investment in operating capital: NOPAT is the same figure [Sales Revenue – Operating Costs and Taxes] as in the first equation. Net investment in operating capital is the same figure as the third term in the first calculation, or you also can use the increase in fixed assets on the balance sheet.
- Free Cash Flow = Net Cash Flow From Operations – Capital Expenditures: Here, Net Cash Flow From Operations comes from the first section of the Statement of Cash Flows, and Capital Expenditures comes from the increase in fixed assets off the balance sheet.
All three methods of calculating free cash flow yield the same answer. source: thebalance.com