There are a couple reasons for why this could be the case. First, let's look at the formula for Free Cash Flow:
FCF = EBIT*(1 - Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditures
(where EBIT is Earnings Before Interest & Taxes, and Net Working Capital is Current Assets Less Current Liabilities)
Since the firm is profitable and expanding, its EBIT will be positive. ...
This solution provides an overview of why a profitable, growing company could have negative free cash flows.
What is free cash flow and what is its importance to a business?
Explain free cash flow and its importance to a business.View Full Posting Details