A difference between total cash inflow and total cash outflow:
NCF = Total Cash Inflow - Total Cash Outflow |
Adjustment in OCF for the changes in Fixed Assets:
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FCF = OCF + Changes in Fixed Assets = OCF + ( Income from Fixed Assets sold - CAPEX )
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FCF = Net Income + Non-Cash Expenses - Increase in Working Capital + Changes in Fixed Assets
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or
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FCF = Total Revenue - COGS - OPEX - Non-Operating Expenses - Interest - Income Tax + Non-Cash Expenses - Increase in Working Capital + Changes in Fixed Assets
It simply shows the corporate cash growth/decline over the reported financial period.
It should match the derivation from FCF:
where FA is financial Activities
It is one of the most important measures of the Business profitability.
Positive FCF shows a clear profitability of the Business.
The early investment periods can face negative FCF but as soon as Net Income is positive with a growing FCF trend then Business can be considered as future-promising.
See also
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Economics / Money / Currency / Cash / Cash Flow
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