![]() Randi’s a freelance graphic designer-she needs to calculate her free cash flow to see if hiring a virtual assistant for 10 hours a month is financially feasible. Let’s take a look at an example of that formula in the real world. With that knowledge in hand, the basic formula for free cash flow looks like this:įree Cash Flow = Net income + Depreciation/Amortization – Change in Working Capital – Capital Expenditure You can find your capital expenditure on the Statement of Cash Flows. Capital Expenditure: Capital expenditures include money your business spends on fixed assets, like land, real estate, or equipment.You can calculate your working capital using the total assets and liabilities on your Balance Sheet. Working Capital: Working capital is the difference between your assets and liabilities and represents the capital used in the day-to-day operation of your business.You’ll find depreciation and amortization on your Income Statement. ![]() Amortization, on the other hand, is a method of breaking down the initial cost of an asset over its lifetime. Depreciation is the measurement of how that value decreases. Depreciation/Amortization: Many of your business assets (like equipment) lose value over time.You’ll find this on your Income Statement. Net income: The total income left over after you’ve deduced your business expenses from total revenue or sales.To start, you’ll need your company Income Statement or Balance Sheet to pull key financial numbers.įirst, let’s get some important financial terms straight. How to calculate free cash flowĬalculating your business’s free cash flow is actually easier than you might think. While a traditional cash flow statement (like the kind you can get from Wave reports) gives you a picture of your business’s cash at a given time, that doesn’t always help with planning and budgeting-because it doesn’t truly reflect the cash you have available, or free to use.Ĭan you afford to invest in that new software? Do you have enough cash on hand to pay for that virtual assistant when their invoice comes due? How much cash do you have free to spend on thank you cards for your clients?Ĭalculating the cash you have available to spend (via the FCF formula) helps answer those questions and others like them. One of the most common and important cash flow formulas is free cash flow (or FCF). Use our free cash flow calculator to follow along. Don’t freak out if they look complicated! We’ll go over definitions, calculations, and examples together. The three cash flow formulas above each have their own benefits and tell you different things about your business. Cash Flow Forecast = Beginning Cash + Projected Inflows – Projected Outflows = Ending Cash. ![]()
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