The purpose of free cash flow is to see what cash is available (free) from the operations of the business after allowing for cash to maintain the current growth rate.
This free cash flow is then available to improve growth by taking advantage of expansion opportunities, to invest in new products, and to reduce debt and pay dividends to equity providers.
The calculation is carried out using the free cash flow formula which deducts the capital expenditure from the operating cash flow for the accounting period.
Both operating cash flow and capital expenditure are found on the cash flow statement of the business. Our tutorial on free cash flow explains in more detail how to locate these two items.
Using the Free Cash Flow Calculator
The Excel free cash flow calculator, available for download below, is used to compute free cash flow by entering details relating to the operating cash flow and the capital expenditure. The calculator is used as follows:
- The operating cash flow is entered. Operating cash flow is found on the cash flow statement of the business.
- The capital expenditure is entered. Capital expenditure is also found on the cash flow statement of the business. Strictly speaking the capital expenditure used in the calculation is the amount required to maintain the growth of the business at the current rate. In practice this figure is not generally available, and it is normal to use the total capital expenditure figure in the financial statements. The calculator calculates the free cash flow for the period.
There is no correct value for the free cash flow as it depends on the industry in which the business operates. It is useful to compare the calculated figure with other businesses in your industry using figures available from published financial statements.
Free Cash Flow Calculator Download
The free cash flow spreadsheet is available for download in Excel format by following the link below.
Users use this free cash flow calculator at their own risk. We make no warranty or representation as to its accuracy and we are covered by the terms of our legal disclaimer, which you are deemed to have read. This is an example of a free cash flow software that you might use when carrying out free cash flow analysis. It is purely illustrative. This is not intended to reflect general standards or targets for any particular business, company or sector. If you do spot a mistake in this free cash flow template, please let us know and we will try to fix it.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.