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Using statements to calculate Free Cash Flow

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Discuss the data as found on the financial statements that are used to calculate free cash flow (FCF) for a firm.

Graduate Level

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Solution Preview

FCF is a measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow represents the cash that a company is able to generate after spending money required to maintain or grow assets.

3 Methods used to calculate and associated Financial Statement/Locations:

Simple: Use the cash flow statement to get both the cash flow from operations and the capital expenditures (capex) or money spent on investments that improve capital assets such as repairing a roof, installing a new floor, or building a factory. Section 1 should be operating; Section 2 will be your Investing activities.

If the statement of cash flows is unavailable you can also get FCF from the Income statement, and a couple periods of ...

Solution Summary

Discusses how to derive the free cash flow of the firm step by step from without using the statement of cash flows. Also describes where free cash flow figures can be located by using other financial statements. Solution describes all data points on financial statements and shows calculations to arrive at Free cash flow using a number of formulas derived from the data points.