How to Calculate the Free Cash Flow From the Annual Report
Cash flow is the rate at which money moves in and out of a business. A positive cash flow generally means the business is financially healthy. However, cash flow does not necessarily reflect the amount of money a business has on hand to pay creditors or owners. Thus, analysts often use an alternative calculation, free cash flow, to determine how much disposable cash a business has on hand.
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Instructions
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Obtain an annual report, also known as a 10K report, for the company you want to invest in. You may be able to download the annual report from the company's website or contact the company to request a copy.
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Search through the 10K report. Find the section labeled "Financial Statements." Highlight the values listed under "Cash Flow From Operations" and "Capital Expenditures."
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Subtract capital expenditures from cash flow from operations. The result is the free cash flow.
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Tips & Warnings
Don't panic if the free cash flow is negative. Examine the rest of the financial statement to determine the reason. If a company has a positive financing cash flow and a negative operating cash flow, it may be just starting out or expanding.
