Understanding Free Cash Flow
free cash flow can be defined as the cash that a company is able to generate after spending the money required to run or expand its business. it is calculated by subtracting capital expenditures, the funds a company uses to upgrade its physical assets, from operating cash flow, the cash a company spends on day to day expenses. although this may sound complicated, free cash flow is actually quite simply calculated. let's look at free cash flow for al's ice cream. al's financial statement show that he earned $150,000 last year. to calculate his free cash flow, al will subtract his change in net working capital for the year, current assets minus current liabilities, equaling $10,000, and his capital expenditures, $40,000 , for a new ice cream machine. these numbers represent the cash that went out of the business. finally, al will add back any non-cash charges that reduces net income, such as depreciation or amortization, plus $20,000, plus $5,000. this brings al's free cash flow to $1,250,000, $150,000 minus $50,000 working capital and expenditure ?, plus $25,000 in depreciation and amortization. free cash flow is the amount of money that companies have available for paying debt, providing dividends to investors, buying back stock and growing business. so, it's an important measure of a company's performance. however, free cash flow can be subject to manipulation in a company's books and is only one of the many metrics investors can use to analyze a stock.
- free cash flow・・・フリーキャッシュフロー→https://en.wikipedia.org/wiki/Free_cash_flow
- capital expenditure・・・資本支出→https://en.wikipedia.org/wiki/Capital_expenditure
- operating cash flow・・・営業上のキャッシュフローhttps://en.wikipedia.org/wiki/Operating_cash_flow
- working capital・・・運転資金→https://ja.wikipedia.org/wiki/%E9%81%8B%E8%BB%A2%E8%B3%87%E6%9C%AC
- non-cash charge・・・非現金費用