Valuation Tutorials

- Valuation Basics
- Enterprise Value
- Enterprise Value Formula
- Equity Value
- Equity Value Formula
- Market Capitalization
- Market Capitalization Formula
- Internal Growth Rate Formula
- Intrinsic Value Formula
- Absolute Valuation Formula
- Assessed Value vs Market Value
- Required Rate of Return Formula
- Historical Cost vs Fair Value
- Large Cap vs Small Cap
- Free Float Market Capitalization
- Market Cap vs Enterprise Value
- Book Value Vs Market Value
- Value vs Growth Stocks
- Book Value Per share
- Fair value vs Market value

- Discounted Cash Flows
- Going Concern concept
- Dividend Discount Model (DDM)
- Gordon Growth Model
- Gordon Growth Model Formula
- Discounted Cash Flow Analysis (DCF)
- DCF Formula (Discounted Cash Flow)
- Free Cash Flow Formula (FCF)
- Free Cash Flow to Firm (FCFF)
- Free Cash Flow to Equity (FCFE)
- Terminal Value
- Terminal Value Formula
- Cost of Equity
- Cost of Equity Formula
- Risk-Free Rate
- Sustainable Growth Rate Formula
- Beta in Finance
- Beta Formula
- CAPM Beta
- Stock Beta
- Calculate Beta Coefficient
- Unlevered Beta
- Market Risk Premium
- Market Risk Premium Formula
- Equity Risk Premium
- Risk Premium formula
- Weighted Average Cost of Capital (WACC)
- Cost of Capital Formula
- WACC Formula
- Security Market Line (SML)
- Systematic Risk vs Unsystematic risk
- Free Cash Flow (FCF)
- Free Cash Flow Yield (FCFY)
- Mistakes in DCF
- Treasury Stock Method
- CAPM Formula
- Cash Flow vs Free Cash Flow
- Business Risk vs Financial risk
- Business Risk
- Financial Risk

- Valuation Multiples
- Equity Value vs Enterprise Value
- Trading Multiples
- Comparable Company Analysis
- Transaction Multiples
- (Price Earning Ratio (P/E)
- PE Ratio formula
- PEG Ratio Formula
- Price to Cash Flow (P/CF)
- Price to Book Value Ratio (P/B)
- Price To Book Value formula
- Price Earning Growth Ratio (PEG)
- Trailing PE vs Forward PE
- Forward PE
- EV to EBITDA Multiple
- EV to EBIT Ratio
- EV to Sales Ratio
- EV to Assets

- Other Valuation Tools
- Valuation Interview Prep

Related Courses

**Table of Contents**

- What is Free Cash Flow Formula?
- Examples of Free Cash Flow Formula
- Other Free Cash Flow Formulas – FCFF & FCFE
- Free Cash Flow Formula Calculator

## What is Free Cash Flow Formula (FCF)?

Free Cash flow is cash in hand of a company, after paying all the expenses. Cash is an important element for business it is required for the functioning of business some investor give more to cash flow statement than other financial statements. Free cash flow is a measure of Cash Company is generating after paying all expenses and loans, it helps to find an actual financial condition of company Free Cash flow reflects in cash statement. Free cash flow (FCF) equation is operating cash flow minus capital expenditure.

A formula to calculate free cash flow (FCF) is as follows:-

Free cash flow equation helps to find the true profitability of a company and it also helps to calculate dividend payout available to distribute it to a shareholder. Through this investor get clarity about the financial condition of a company which provides in details about the liquidity of a company.

There is another formula to calculate free cash flow which is net income plus non-cash expense minus the increase in working capital minus capital expenditure.

The formula for the calculation of free cash flow (FCF) is as follows:-

### Calculate FCF using Free Cash Flow Formula – Step by Step

Now, let’s see the steps to calculate FCF and formula components.

**Step 1:** To calculate Cash from Operations and Net income.

Cash from operation is net income plus non-cash expense minus increase in non-cash working capital.

**Cash from operations = Net income + Non-cash expense – Increase in non-cash working capital**

**Step 2:** To calculate Non-Cash Expense.

It is a sum of depreciation, amortization, share-based compensation, impairment charges and gains or losses on investments.

**Non-Cash Expense = Depreciation + Amortization + Stock-based compensation + Impairment Charges + Gains or losses on Investments**

**Step 3:** To Calculate changes in non-cash net working capital or increase in working capital.

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Changes in working capital can be calculated by comparing current year inventory, account receivable or account payable with previous year values. The formula can be written as:-

**Change in Working Capital = (AR _{2018 }– AR_{2017}) + (Inventory_{2018 }– Inventory_{2017}) – (AP_{2018 }– AP_{2017})**

Where,

AR = Account Receivable

AP = Account Payable

**Step 4:** To Calculate Capital Expenditure.

Capital expenditure can be calculated by using the PP&E approach which is Property, Plant and Equipment. The formula for same can be calculated by below:-

**CapEx = PP&E _{2018 }– PP&E_{2017 }+ Depreciation & Amortization**

Where,

PP&E = Property, Plant, and Equipment

**Step 5:** To Calculate FCF Formula.

Now as we know the formula for FCF is:-

Free Cash Flow (FCF) Formula = Net Income + Non-cash expenses – Increase in working capital – Capital Expenditure

Putting the value calculated in step 1 to step 4 in the above.

**FCF = Net Income + Depreciation + Amortization + Stock based compensation + Impairment Charges + Gains or losses on Investments – {(AR _{2018 }– AR_{2017}) + (Inventory_{2018 }– Inventory_{2017}) – (AP_{2018 }– AP_{2017})} – {PP&E_{2018 }– PP&E_{2017 }+ Depreciation & Amortization}**

In Simple,

**Free Cash Flow Formula = Cash from Operations – CapEx**

**Examples of FCF Formula (with Excel Template)**

Let’s see some simple to advanced examples to understand the calculation of free cash flow formula better.

#### FCF Formula – Example #1

A company named Greenfield Pvt. Ltd which deal with organic vegetables have a capital expenditure of $200 and operating cash flow $1,100. Now calculate the Free cash flow for the company.

In below-given template is the data for the calculation of free cash flow equation.

So, the calculation of free cash flow will be-

i.e. Free Cash Flow Formula = $1,100 – $200

**So, Free Cash Flow will be –**

FCF for a company is $900.00 after reducing capital expenditure.

#### FCF Formula – Example #2

Let’s see an example to calculate free cash flow with another formula.

Suppose, a company with net income $2,000, capital expenditure of $600, non-cash expense $300 and increase in working capital $250.

In below-given template is the data for the calculation of free cash flow equation.

So, the Calculation of Free Cash Flow will be –

i.e. FCF = 2000 + 300 – 250 – 600

**Now, Free Cash Flow will be –**

Free Cash Flow i.e. FCF of a company is $11,450.00

### Other Free Cash Flow Formulas

There are basically two types of Free Cash Flow; one is **FCFF** and another is **FCFE**.

#### #1 – Free Cash to the Firm (FCFF) Formula

FCFF is also referred to as Unlevered. It is the ability of a company to generate cash for its capital expenditure. FCFF is cash flow from operating activities minus capital expenditure.

##### Example of FCFF

Suppose a company with capital expenditure of $1000 and cash flow from operating activities is $2500. Now, let’s calculate FCFF.

In below-given template is the data for the calculation of Free Cash to Firm.

So, the calculation of FCFF will be –

i.e. FCFF = 2500 – 1000

**Therefore FCFF will be –**

So, FCFF for company is $1,500.00

#### #2 – Free Cash Flow to Equity (FCFE) Formula

FCFE is also referred to as levered. It is basically cash available for a shareholder of the company to distribute a dividend. FCFE helps to calculate dividend payout available to distribute it to a shareholder.

FCFE is a sum of free cash to the firm plus net borrowing minus interest multiply by one minus tax.

##### Example of FCFE

Let’s take an example where a company with capital expenditure of $1000, net borrowing of $500 with interest of $200 and tax of 25% and cash flow from operating activities is $2500. Now, let’s calculate FCFF.

In below-given template is the data for the calculation of Free Cash Flow to Equity (FCFE)

**FCFF –**

i.e. FCFF Formula= 2500 – 1000

FCFF = $1,500.00

So, the calculation of FCFE will be –

i.e. FCFE Formula = 1500 + 500 – 200 * (1-.25)

**Therefore, FCFE will be –**

So, FCFE for a company is $1,850.00

### Free Cash Flow Formula Calculator

You can use the following Free cash flow Formula calculator –

Operating Cash Flow | |

Capital Expenditure | |

Free Cash Flow Formula | |

Free Cash Flow Formula = | Operating Cash Flow – Capital Expenditure |

0 – 0 = | 0 |

### Relevance and Use of Free Cash Flow Formula

There are multiple uses of free cash flow equation they are as follows:-

- To calculate the profitability of a company.
- To get a financial position of a company.
- Free Cash Flow Formula helps a company to take a decision of new product, debt, business opportunity.
- Free Cash Flow Formula helps to know cash available which have to be distributed among shareholders of a company.

If FCF of a company is high then it means a company has sufficient fund for a new product launch, business expansion, and growth of the company but sometimes if a company has low FCF it may possible company will have huge investment and company will grow in long run. FCF helps an investor to calculate their profitable returns on investment in a particular company.

### Recommended Articles

This has been a guide to Free Cash Flow (FCF) Formula. Here we discuss how to calculate Free Cash Flow (FCF) using practical examples and downloadable excel template. You can learn more about financial analysis from the following articles –