A free cash flow statement is a financial statement that summarizes the amount of cash and cash equivalents generated by a company’s operations. It is important for investors and creditors to understand a company’s free cash flow because it can provide insights into the company’s financial health and its ability to meet its financial obligations. Free cash flow can be used to pay dividends, reduce debt, or invest in new projects.
There are many different free cash flow statement templates available, but they all typically include the following information:
- Operating activities
- Investing activities
- Financing activities
Operating Activities
The operating activities section of a free cash flow statement shows the amount of cash that a company generated from its core operations. This includes cash from sales, less cash paid for expenses such as salaries, rent, and utilities.
To calculate operating cash flow, start with net income. Then, add back depreciation and amortization, which are non-cash expenses. Next, subtract any gains or add back any losses on the sale of assets. Finally, adjust for changes in working capital, such as changes in accounts receivable and inventory.
Investing Activities
The investing activities section of a free cash flow statement shows the amount of cash that a company spent on new investments. This includes cash spent on property, plant, and equipment; acquisitions; and other long-term investments.
To calculate investing cash flow, start with the net change in property, plant, and equipment. Then, add back any proceeds from the sale of assets. Finally, subtract any purchases of new assets.
Financing Activities
The financing activities section of a free cash flow statement shows the amount of cash that a company raised from financing activities. This includes cash from the issuance of debt and equity, as well as cash used to pay dividends.
To calculate financing cash flow, start with the net change in debt. Then, add back any proceeds from the issuance of new debt. Finally, subtract any payments made on existing debt.
Conclusion
Free cash flow is an important financial metric that can provide insights into a company’s financial health and its ability to meet its financial obligations. A well-written free cash flow statement can be a valuable tool for investors and creditors.
If you are looking for a free cash flow statement template, there are many different resources available online. You can also find free cash flow statement templates in many financial software programs.
