FREE CASH

FLOW
FREE CASH FLOW
the amount of cash that could be withdrawn without
harming a firm’s ability to operate and to produce future
cash flows

EBIT(1 – T) is the after-tax operating income

It appears that FCF is negative, which is not good.
Note that the negative FCF is largely attributable to the $230 million expenditure for a new
processing
plant. This plant is large enough to meet production for several years, so another new plant will
not be needed. Therefore, the next few years should increase FCF, which means that things are not
as bad as the negative FCF might suggest.
Note also that most rapidly growing companies have negative FCFs—the fixed assets and working
capital needed to support rapid growth generally exceed cash flows from existing operations.
This is not bad, provided the new investments are eventually profitable and contribute to FCF.