Free cash flow

Free cash flow has no uniform definition. A common convention is operating cash flow less capital expenditure; an unlevered valuation measure is typically after operating taxes and before financing cash flows. State the convention and reconcile the inputs.

Related variants Levered FCF, Levered free cash flow

Levered free cash flow

For the cash available to equity after mandatory debt service, deduct cash interest, scheduled principal and other required cash uses on a consistent basis. Distinguish this line from pre-financing cash flow; include new borrowing explicitly if calculating cash flow to equity. Definitions vary by model.

Free cash flow in round numbers

A hypothetical business with earnings before interest, taxes, depreciation and amortization (EBITDA) of 5 million, maintenance capex of 1 million and a working-capital increase of 0.4 million has 3.6 million remaining before cash interest and taxes. This simplified pre-interest, pre-tax subtotal assumes no growth capex or other cash adjustments; it is not automatically cash available to owners.

Source: SEC non-GAAP interpretations, question 102.07.

Shayne Fitz-Coy’s definition of Free cash flow

RJR Nabisco had so much free cash flow because they were pooping cash. There was money everywhere, and it led them to act irresponsibly with it.

EBITDA · Maintenance vs growth capex · Working capital · Cash sweep · Negative working capital · Cost of debt service · DSCR · Owner earnings · The Debt Lightsaber · The Death of Cheap Debt · The Five Laws of PE Value Creation · All of the glossary