Free Cash Flow Calculator

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Free Cash Flow Calculator

Free cash flow (FCF) represents the cash that a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike earnings or net income, free cash flow is a measure of profitability that excludes the non-cash expenses of the income statement and includes spending on equipment and assets as well as changes in working capital from the balance sheet.

Understanding Free Cash Flow (FCF)

Free cash flow is the cash flow available for the company to repay creditors or pay dividends and interest to investors. Some investors prefer to use FCF or FCF per share over earnings or earnings per share as a measure of profitability because these metrics remove non-cash items from the income statement. However, because FCF accounts for investments in property, plant, and equipment (PP&E), it can be lumpy and uneven over time. 

Free cash flow is an important financial metric because it represents the actual amount of cash at a company’s disposal. A company with consistently low or negative FCF might be forced into costly rounds of fundraising in an effort to remain solvent. Similarly, if a company has enough FCF to maintain its current operations, but not enough FCF to invest in growing its business, that company might eventually fall behind its competitors. For yield-oriented investors, FCF is also important for understanding the sustainability of a company’s dividend payments, as well as the likelihood of a company raising its dividends in the future.

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