In fact, the Change in Working Capital (“Changes in Operating Assets & Liabilities”) became negative in Year 3, but FCF increased anyway. Here’s a quick comparison of Free Cash Flow for Best Buy (a U.S.-based retailer) and Zendesk (a U.S.-based software company):įor Best Buy, the interpretation is as follows:įCF is positive and growing, which is good, and the company doesn’t seem to be “playing games” by artificially cutting CapEx or changing its Working Capital to boost its FCF. How to Calculate Free Cash Flow: Comparison for Best Buy and Zendesk GAAP.īecause of the changes to lease accounting made in 2019, however, the calculation is often more complex for non-U.S. “How to calculate Free Cash Flow” seems like a very simple topic/formula – and it mostly is that simple under U.S. The company still pays the full Lease Expense in cash splitting it into Interest and Depreciation elements does not change that.Īlso, if CFO includes many items in the Non-Cash Adjustments section besides D&A and Deferred Taxes, you may want to remove them to standardize the formula. ![]() So, if the company you’re analyzing has a CFO section that does not do that, you will need to adjust it for comparability purposes.įor example, under IFRS, you should remove the Lease Depreciation add-back in CFO because it’s not a true “non-cash expense.” One important note – especially under IFRS – is that this definition assumes that Cash Flow from Operations deducts Net Interest Expense, Preferred Dividends, Taxes, and all Lease Expenses. How to Calculate Free Cash Flow Under IFRS and Other Accounting Systems
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