Build Free Cash Flow Without Double Counting
Calculate free cash flow from operating cash flow and capital expenditures while explaining what it means.
A company reports $4.8M operating cash flow, $2.1M total capex, and $1.4M of that capex is for a new growth site. Start from operating cash flow, subtract capex once, then explain capex quality. A common shortcut subtracts changes in working capital again even though operating cash flow already includes them. That understates free cash flow and confuses the bridge. Step 1 Start with operating cash flow: $4.8M. Operating cash flow already includes working-capital movements, so do not subtract AR, inventory, or AP changes again. Step 2 Subtract total capex: $4.8M - $2.1M = $2.7M reported FCF. This is the standard…
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