A company’s ability to effectively manage its cash position is reflected in the quality of the statement of cash flows that are included in its financial statements. This statement provides a great deal of insight into the movement of cash into and out of an organisation.

One of the most significant metrics that can be obtained from a cash flow statement is the free cash flow, often known as FCF. In the context of fundamental analysis, the term “free cash flow” refers to the amount of cash that a firm earns after all of its capital expenditures have been taken into consideration.

To determine a company’s free cash flow, one must first consult the company’s balance sheet, then take the entire cash flow from operational activities and deduct the total amount spent on capital expenditures.

So, what is Free Cash Flow and how can you calculate Free Cash Flow in Excel?

Read more: How To Calculate Operating Cash Flow

What Is Free Cash Flow (FCF)?

The cash that is generated by a firm after taking into account the financial expenses that are necessary to sustain its operations and maintain its capital assets is referred to as free cash flow (FCF). To put it another way, free cash flow is the amount of cash that is available to a firm after it has paid for its operating costs and its capital expenditures (CapEx).

The money that is available for a firm to spend as it sees fit after it has paid for expenses like taxes, rent, and payroll is referred to as free cash flow (FCF). A company’s cash management may be improved by having knowledgeable employees who can calculate and evaluate free cash flow.

The determination of FCF will also provide investors insight into a company’s financials, which will assist them in making more informed choices about their investments.

Read more: What Is Cash From Operating Activities

How Can You Calculate Free Cash Flow In Excel?

  • In cell A3, you should type “New Debt Financing,” and in cell B3, you should enter the matching value for the period. In cell A4, write “Debt Repayments,” and then in column B4, enter the total amount of money that was paid back for the period.
  • Put “Net Borrowing” in cell A5 of the spreadsheet. To determine how much you have borrowed, use the calculation “=B3-B4” in cell B5 of your spreadsheet.
  • In cell A6, you will want to type “Cash Flow From Operations,” and in cell B6, you will want to input the matching amount from your statement of cash flows. In cell A7, you should type “Capital Expenses,” and in cell B7, you should input the matching number from your revenue statement.
  • In the column labelled “A8,” type “Free Cash Flow to Equity.” To arrive at your first number for free cash flow, enter the formula “=B6-B7+B5” into cell B8 of your spreadsheet. A measure of FCF that takes into account the perspectives of both creditors and shareholders is referred to as free cash flow to equity.
  • Skip a row. In cell A10, you should type “Interest Expense,” and in cell B10, you should enter the proper number. In cell A11, you should type “Tax Rate,” and in cell B11, you should input the income tax rate for the period. Find your income tax rate by looking at the tax return you filed for the previous year.
  • In cell A12, you should type “Free Cash Flow to the Firm.” To determine the second number for your free cash flow, enter the formula “=B6+(B10*(1-B11))-B7” into cell B12. As a measure of FCF from the perspective of the business being evaluated, free cash flow to the firm is an important metric.