Free Cash Flow to the Firm (FCFF) (investopedia.com)
Q? - Would you include amortisation when factoring in CapEx?
Cash flow is the net amount of cash and cash equivalents being transferred into and out of a company. Positive cash flow indicates that a company's liquid assets are increasing, enabling it to settle debts, reinvest in its business, return money to shareholders, and pay expenses.
Cash flow is reported on the cash flow statement, which contains three sections detailing activities. Those three sections are cash flow from operating activities, investing activities, and financing activities.
FCFF is the cash flows a company produces through its operations after subtracting any outlays of cash for investment in fixed assets like property, plant, and equipment and after depreciation expenses, taxes, working capital, and interest are accounted for. In other words, free cash flow to the firm is the cash left over after a company has paid its operating expenses and capital expenditures.
Happy Sunday all.
This might be a silly question, but I am interested in members' thoughts on how they calculate free cash flow, specifically as it relates to capital expenditure (CapEx).
To get free cash flow, we have to ascertain a specific business' CapEx requirements. Most agree that CapEx = plant, property and equipment (PP&E) + current depreciation.
Let's use Jumbo's recent annual report as an example -- noting left is FY22 and right is FY21.
In addition to the above:
FY21 PP&E = 695k
FY20 PP&E = 396k
Based on this, what would you suggest are Jumbo's CapEx costs for the year? Would you include amortisation when factoring in CapEx?
Interested in all thoughts here -- I have seen mixed comments in recent weeks about how one arrives at CapEx and what exactly is included in this. I should note that I wouldn't normally include amortisation (intangible) in my calculations.