Free Cash Flows

Free cash flows (FCFs) are the cash flows that a company generates after accounting for
capital expenditures, such as investments in property, plant, and equipment. FCFs
represent the cash that a company has available to pay dividends, pay off debt,
repurchase shares, or make other investments.

To calculate free cash flows, you can use the following formula:

FCF = Net Income + Depreciation & Amortization - Changes in Working Capital -

Capital Expenditures

Where:

 Net Income is the company's net income from its income statement
 Depreciation & Amortization is the non-cash expense that represents the
allocation of the cost of long-term assets over their useful life
 Changes in Working Capital is the difference between the company's current
assets and current liabilities
 Capital Expenditures is the money that the company spends on acquiring or
improving long-term assets

For example, if a company has net income of $500,000, depreciation and amortization of
$100,000, a decrease in working capital of $50,000, and capital expenditures of
$250,000, its free cash flow would be:

FCF = 500,000 + 100,000 - 50,000 - 250,000 = $400,000