What is the free cash flow ratio?
The free cash flow ratio is an amount, rather than a ratio.
The free cash flow calculation often begins with the cash flow from operating activities shown on the statement of cash flows (SCF). Next the amount of capital expenditures, taken from the investing activities section of the SCF for the same period, is deducted to arrive at the amount of free cash flow.
There are variations of the above calculation. For example, the dividends to stockholders might be viewed as a requirement and will be deducted along with the capital expenditure amount.
Learn more about Financial Ratios.
About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.
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From my reading above, is it the same as saying - Free Cash Flow is the amount of
NET Cash Flow from Operating Activities
Less: Cash OUTflow from Investing
Equals FREE CASH FLOW
What is the role of INflow from Investing Activities in this case?
Can I say too that the difference between the change in Cash Account for the period and the Net Cash Flow from Financing Activies is the the same as the FREE Cash Flow?
Other Professor thought that the NET Cash Flow from Operating Activities (SCF) is the amount of FREE Cash Flow, why is that?
FCF is measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it’s tough to develop new products, make acquisitions, pay dividends and reduce debt. FCF is calculated as:
Net income
+amortization or depreciation
-changes in working capital
-capital expenditures
________________________
Free cash flow
the source: http://www.investopedia.com/terms/f/freecashflow.asp?viewed=1