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Free Cash Flow

Free Cash Flow is an important number to consider as it determines the Cash Flow available to pay the Company’s Financial Stakeholders, Debtors and Shareholders.

Free Cash Flow (FCF) is the total cash flow generated by a company from normal operations. The calculation is made by taking Retained Earnings, adjusting for non-cash expenses in the Profit and Loss, Depreciation and Amortisation and the Balance Sheet items of changes in Working Capital and CAPEX. Free Cash Flow is the cash a company has available to pay or fund the obligations, real or expected, of the two financial stakeholders in a Company. They are, Debtors in repaying and servicing Debt obligations and to pay Dividends to Shareholders.

The Free Cash Flow is often quoted on a per share basis known as Free Cash Flow per Share. The calculation is made by taking Free Cash Flow, then dividing by the number of Common Shares outstanding. Two interesting ratios can then be calculated. First the Price CF Ratio = Price / CF per Share, similar to the PE Ratio. Second, if the Price CF Ratio number is inverted, or 1 / Price CF Ratio, this gives a Cash Flow yield as a percent, similar to the Dividend Yield calculation.

Accounting
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Warren William

Meet the author behind Smartest-Data. Warren William has a career in Finance and Investments extending over 35 years, both on the Buy Side and Sell Side. His most recent roles include, developing Institutional Risk Management Programs for managing Equity and Fixed Income Risk.  Prior to this Warren William work in Alternative Investments, in Investment Management and as a Buy Side Equity Analyst. Warren William brings a wealth of knowledge and expertise to the table, providing in-depth analysis and commentary on the latest trends in the Stock Markets. Contact information: wwBLOG@smartest-data.blog or Telegram +393339034488

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