How To Calculate Free Cash Flow [With Free Cash Flow Calculator]

How To Calculate Free Cash Flow [With Free Cash Flow Calculator]

Free Cash Flow Calculator

Plug your numbers into this calculator to get your free cash flow number:

(see below for more detailed explanation)

How to calculate free cash flow

Calculating your business’ free cash flow is simple.

You will just need the following figures:

  1. Net income: Similar to profit, this is total income left over after you’ve deduced your business expenses from total revenue or sales. You’ll find this on any income statement.
  2. Depreciation/Amortization: Some of your business assets (like equipment) lose value over time, such as a car or a home. Depreciation is the measurement of how that value decreases. Amortization, on the other hand, is a method of breaking down the initial cost of an asset over its lifetime. You’ll find depreciation and amortization on most income statements.
  3. 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 can calculate your working capital using the total assets and liabilities line item on your balance sheet.
  4. Capital Expenditure: Capital expenditures include money your business spends on fixed assets, like land, real estate, or equipment. You can find your capital expenditure on the cash flow statement.

The basic formula for free cash flow looks like this:

Free Cash Flow = (1) Net income + (2) Depreciation/Amortization – (3) Change in Working Capital – (4) Capital Expenditure

A Real World Example

Pat runs an online business — he needs to calculate if he can afford to run $1,000 in ads every month.

His financials for the year look like this:

  • Net income = $100,000
  • Depreciation/Amortization = $0 (he doesn't have any depreciating assets)
  • Change in Working Capital = $10,000
  • Capital Expenditure = $2,500 (Pat bought a new computer last year)

So Pat's free cash flow is represented by:

[$100,000] + [$0] – [$10,000] – [$2,500] = $87,500

That means he has $67,500 in available cash to reinvest back into the business. He can afford to run the ads.

Software to help you calculate free cash flow:

Pat Walls,  Founder of Starter Story

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