How to Calculate Free Cash Flow

Video Transcript

"Calculating free cash flow has to do with assessing two numbers, income and outflow. People like to try to do that on a monthly basis. It is usually easier to do it on an annual basis because then you get the hot water heater and the tires and all those incidental expenses that are not necessarily there every month and you add everything up. Every year when we do our taxes we look at our total income, we look at our total expenses, we look at our debt obligations and we see well we paid this mortgage down or we did this or we did that or we took a credit card out or we borrowed some money at 3.9% because it was cheap money or we bought a house and fixed it up and sold it and so you track this stuff. Again what did I spend on it that's the outflow, what was the income from it, that's the income, you add those two numbers up and it's not a big accounting nightmare to do that anybody can do it with simple arithmetic and a calculator."