To calculate free cash flow, net cash supplied by operational operations is subtracted from planned investments and cash dividends.
Net cash provided by operating activities.
- Either the direct technique or the indirect approach can be used to compute net cash from operating operations. To calculate net cash flow from operations using the direct approach, operational cash costs are subtracted from the total of operating cash revenues.
- According to the indirect approach, to calculate net cash flow from operations, non-cash items like depreciation are added back to net income and change in working capital is subtracted.
- After subtracting the projected investments and cash dividends from the net cash flow from operational operations, the free cash flow is calculated.
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