Calculate Free Cash Flow

by

Free Cash Flow (FCF) Calculator

Subtract if working capital increased.

Results

Understanding Free Cash Flow (FCF)

Free Cash Flow (FCF) is one of the most critical metrics in finance. It represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike earnings or net income, FCF is a measure of profitability that excludes the non-cash expenses of the income statement and includes spending on equipment and assets as well as changes in working capital from the balance sheet.

The Free Cash Flow Formula

This calculator uses the standard method of calculating FCF starting from Net Income:

Free Cash Flow = Net Income + Depreciation/Amortization – Change in Working Capital – Capital Expenditures

Why Is Free Cash Flow Important?

  • Dividend Payments: Companies with high FCF are more likely to sustain and grow dividend payments to shareholders.
  • Debt Repayment: It indicates the capacity of a business to pay down debt without seeking external financing.
  • Acquisitions: Positive FCF provides the "dry powder" needed to acquire other businesses or invest in new product lines.
  • Value Indicator: Investors often prefer FCF over Net Income because it is harder to manipulate through accounting practices.

Example Calculation

Imagine a company with the following financials:

  • Net Income: $200,000
  • Depreciation: $30,000 (Non-cash expense added back)
  • Working Capital Increase: $10,000 (Cash tied up in inventory/receivables, so subtracted)
  • CapEx: $50,000 (Investment in new machinery, subtracted)

Calculation: $200,000 + $30,000 – $10,000 – $50,000 = $170,000 FCF.

function calculateFCF() { var netIncome = parseFloat(document.getElementById("netIncome").value); var depreciation = parseFloat(document.getElementById("depreciation").value); var workingCapital = parseFloat(document.getElementById("workingCapital").value); var capex = parseFloat(document.getElementById("capex").value); // Validation if (isNaN(netIncome) || isNaN(depreciation) || isNaN(workingCapital) || isNaN(capex)) { alert("Please enter valid numerical values for all fields."); return; } // FCF Formula: Net Income + Non-cash charges – Change in Working Capital – CapEx var freeCashFlow = netIncome + depreciation – workingCapital – capex; // Display Logic var resultArea = document.getElementById("fcf-result-area"); var display = document.getElementById("fcf-display"); var interpretation = document.getElementById("fcf-interpretation"); resultArea.style.display = "block"; display.innerText = "$" + freeCashFlow.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); if (freeCashFlow > 0) { interpretation.innerHTML = "Positive FCF: The business is generating more cash than it consumes. This indicates financial health and the ability to expand, pay dividends, or reduce debt."; display.style.color = "#2e7d32"; } else if (freeCashFlow < 0) { interpretation.innerHTML = "Negative FCF: The business is consuming more cash than it generates. This is common for startups but may be a warning sign for mature companies unless it is due to heavy strategic investment."; display.style.color = "#d32f2f"; } else { interpretation.innerHTML = "The business is at a break-even cash flow point."; display.style.color = "#1a73e8"; } }

Leave a Comment