Know the Figures

Free Cash Flow Calculator

The cash left from operating profit after tax, working capital and capital spending.

Replaces: FP&A cash flow models

How to use it

Enter operating profit, the cash tax paid, depreciation, the movements in working capital and capital spending. The calculator walks from profit to free cash flow one line at a time, then takes off interest for a levered figure.

Where the number comes from

  • Start from operating profit (EBIT), before interest so the result does not depend on how the business is financed.
  • Subtract the tax actually paid in cash, and add back depreciation and amortisation, which reduced profit without any money leaving.
  • Subtract the increase in working capital: a rise in receivables or inventory absorbs cash, a rise in payables releases it.
  • Subtract capital expenditure. What remains is unlevered free cash flow.
  • Subtract interest paid for levered free cash flow. The margin divides free cash flow by revenue; cash conversion divides it by EBIT.

What goes wrong

The part most calculators leave out.

  • Levered free cash flow here is simplified: it takes off interest but not debt repayments. A business with loan principal falling due can show positive levered free cash flow and still be short of cash.
  • Tax paid and tax charged differ. Using the income statement charge instead of cash tax can move the result by the whole timing difference, especially in a year with a large payment on account or refund.
  • Working capital movements are the change in the balance, not the balance. Entering the closing receivables instead of the increase overstates the drain by the full amount owed.
  • One period is noisy. Capex is lumpy and working capital swings with invoice timing, so a single year can make a sound business look cash-negative or a weak one look strong.
  • Leases, acquisitions and capitalised development costs are capital spending in substance. Leaving them out flatters free cash flow.

Where 900,000 of profit went

A manufacturer earns 900,000 of operating profit on 6m of revenue. It pays 180,000 of tax and adds back 150,000 of depreciation. Receivables grew 120,000 and inventory 60,000 while payables grew 40,000, so working capital absorbed 140,000. Capital expenditure of 260,000 runs at 1.73× depreciation. Free cash flow lands at 470,000: a 7.8% margin, and only 52% of operating profit. After 70,000 of interest, levered free cash flow is 400,000 — before any debt repayments.

Questions

What is the difference between unlevered and levered free cash flow?
Unlevered free cash flow is measured before interest, so it describes the business regardless of how it is financed. Levered free cash flow takes interest (and, in a full model, debt repayments) off, leaving what is available to the owners.
How is free cash flow different from operating cash flow?
Operating cash flow stops after working capital. Free cash flow also subtracts capital expenditure, because the cash needed to maintain and grow the asset base is not available for anything else.
Is negative free cash flow bad?
Not on its own. Heavy investment in capacity or a fast build-up of receivables during growth both push free cash flow below zero. What matters is how long it lasts and how it is funded.
Does anything I type get sent anywhere?
No. The whole calculation runs in your browser. Nothing is sent to us or logged, and there is no account to create. Your browser keeps the figures with this tab’s history so that Back and Reload bring them back, and Reset clears them.

Last updated .

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