Free cash flow represents the cash that is available for the company to reinvest or distribute to its shareholders after accounting for capital expenditures, working capital changes, and non-operating assets or liabilities.
Free Cash Flow (FCF) Formula:
Where:
NOPAT(Net Operating Profit After Tax) is the company's operating income after taxes.D&A(Depreciation and Amortization) are non-cash expenses added back to cash flows.Capex(Capital Expenditures) represents the company’s investment in physical assets.Changes in NWC(Net Working Capital) reflect the changes in current assets minus current liabilities.Changes in Other Non-Interest Bearing Assets/Liabilitiesrefer to changes in non-interest bearing items that impact cash flow.
Total Cash Flow Formula:
Where:
Tax Shield on Interestrefers to the tax savings achieved from interest payments on debt, as interest is tax-deductible.
Flow to Equity Formula:
Where:
Interest Expense (net)represents the net amount of interest paid on debts.Changes in Net Debtreflects any increase or decrease in the company's debt level, which may influence the available cash to shareholders.