What is the difference between free cash flow and net cash flow?

The first is the accounting for the purchase of capital goods. Net income deducts depreciation, while the free cash flow measure uses last period's net capital purchases. Capital investments are at the discretion of management, so spending may be sporadic.

What is the free cash flow formula?

Free cash flow is a measure of cash a company generates after paying all expenses and loans. It helps find an actual financial condition of free cash flow reflected in the cash statement. The Free Cash Flow (FCF) formula is operating cash flow minus capital expenditure.

How is free cash flow used to calculate the intrinsic value of a company?

It is calculated by deducting capital expenditures (CAPEX) from operational cash flow. For investors, free cash flow serves as an indicator of a company's financial performance, which affects how much a company is worth. For small business owners, FCF helps them figure out if their business can grow, change, or make more money.

What is the importance of free cash flow?

Free cash flow is important to investors and business analysts because it shows how much cash your company has at its disposal. They often assess your free cash flow to determine whether your company has enough cash to repay debts, issue dividends and buy back shares.