Free cash flow (FCF) is a measure of a company's financial performance that represents the amount of cash it has available for distribution to shareholders after accounting for capital expenditures. In other words, it is the cash that a company generates from its operations, minus the amount of money it needs to invest in order to maintain and grow its business.
Here is an example of how to calculate free cash flow:
Let's say that a company has the following financial information for the year:
Net income: $500,000
Depreciation and amortization: $100,000
Capital expenditures: $150,000
To calculate the company's free cash flow, we would first add back the amount of depreciation and amortization to its net income, since these are non-cash expenses that were subtracted from net income to arrive at the company's net cash flow from operations. This would give us net cash flow from operations of $500,000 + $100,000 = $600,000.
Next, we would subtract the company's capital expenditures from this amount to arrive at its free cash flow. In this case, the company's free cash flow would be $600,000 - $150,000 = $450,000.
This means that the company has $450,000 in free cash flow that it can use to pay dividends, buy back shares, pay off debt, or invest in other opportunities.