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Finance Dictionary and Glossary of Investment Terms
Free cash flows
Definition 1.
Cash not required for operations or for reinvestment. Often defined as earnings before interest (often obtained from the operating income line on the income statement) less capital expenditures less the change in working capital. In terms of a formula:Free cash flows =Sales (Revenues from operations)- COGS (Cost of goods sold-labor, material, book depreciation)- SG&A (Selling, general administrative costs)EBIT (Earnings before interest and taxes or Operating Earnings)- Taxes (Cash taxes)EBIAT (Earnings before interest after taxes)+ DEP (Book depreciation)- CAPX (Capital expenditures)- ChgWC (Change in working capital)C (Free cash flows)
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