A. Free cash flow (FCF) is a measure of a company’s cash flow that is available for distribution after accounting for capital expenditures. It is the cash that a company generates after accounting for the funds necessary for maintaining and growing its business operations.
The formula for calculating free cash flow is:
Free Cash Flow = Operating Cash Flow – Capital Expenditures
Operating cash flow can be calculated by taking net income, adding back non-cash expenses such as depreciation and amortization, and then subtracting changes in working capital items such as accounts receivable and accounts payable.
Capital expenditures (CapEx) are the funds a company uses to acquire or upgrade physical assets such as property, plant, and equipment. It can be found on the cash flow statement.
