Free Cash Flow or FCF measures the financial performance of a company. It is calculated by subtracting the capital expenditures from the operating income. It is the cash that the company is able to generate after using the cash required to maintain or expand its asset base. This is an important figure as it shows the companies are able to pursue opportunities to enhance shareholder value. Without cash, a company cannot invest in new products, issue a dividend or reduce debt. This is an important tool in the valuation of a company.
Calculation
Net Income
+ Amortization/Depreciation
- Change in Working Capital
- Capital expenditures
= Free Cash Flow
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