The formula for Free Cash Flow is:
Free Cash Flow = Cash Provided by Operations – Capital Expenditures – Cash Dividends
Free Cash Flow is determined from the Statement of Cash Flows. This accounting evaluation is used to determine whether the company has sufficient cash to maintain its operations, invest in new assets and pay dividends to stockholders. Essentially free cash flow is what cash is left over after the company invests in what it needs to produce a product/ service and pays the investors.
