How to use this calculator
Enter your net income and depreciation and amortization figures from your income statement. Then add your working capital changes: increases in accounts receivable and inventory reduce cash flow, while increases in accounts payable improve it.
Enter your capital expenditures (money spent on equipment, property, or other long term assets). Optionally provide revenue to calculate FCF margin, shares outstanding for FCF per share, and market capitalization for FCF yield.
The calculator shows operating cash flow, free cash flow, and all optional metrics. Use these figures to evaluate business health, compare investment opportunities, or prepare for valuation discussions.
Understanding free cash flow
Free cash flow bridges the gap between accounting profits and actual cash generation. A business might report strong net income while its bank account tells a different story because of inventory builds, slow collections, or heavy equipment purchases.
Operating cash flow starts with net income and adjusts for non cash items and working capital changes. It shows how much cash the core business generates. Free cash flow takes it further by subtracting the capital expenditures required to maintain and grow the asset base.
Investors prize free cash flow because it represents real money available for shareholder returns. Companies with consistently positive and growing FCF have more flexibility to pay dividends, buy back shares, reduce debt, or invest in new opportunities without relying on external capital.
Frequently asked questions
What is the difference between operating cash flow and free cash flow?
Operating cash flow measures cash generated from business operations including working capital changes. Free cash flow subtracts capital expenditures from operating cash flow to show what remains after maintaining the asset base. A company can have positive operating cash flow but negative FCF if CapEx is high.
Can free cash flow be higher than net income?
Yes. FCF can exceed net income when depreciation and amortization (non cash charges that reduce net income) are larger than capital expenditures. This is common in asset light businesses or companies that made large investments years ago and now have low maintenance CapEx relative to their depreciation schedules.
What does negative free cash flow mean?
Negative FCF means the company spent more cash than it generated from operations. This can be concerning for mature businesses but is common for growing companies investing heavily in expansion. The key is whether the investments will generate positive returns that increase future FCF.
How do working capital changes affect free cash flow?
When accounts receivable or inventory increase, cash is tied up and FCF decreases. When accounts payable increase, you are effectively using supplier financing and FCF increases. Fast growing companies often see negative working capital impact because receivables and inventory grow faster than payables.
What is FCF yield and why does it matter?
FCF yield is free cash flow divided by market capitalization (or enterprise value). It shows what percentage of a company's value is generated as free cash each year. A high FCF yield relative to peers suggests potential undervaluation, while a very low yield implies the market expects significant growth.