Defintion of Free Cash Flow

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Sardine

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1.) Is Free Cash Flow the summation of:

a. Operating Cash Flow and Net Capital Expenditures, or

b. Operating Cash Flow and Net Investment Cash Flow?

I know that Net Investment is cash Flow is the addition of net capital expenditures and other forms of investment (e.g. Short term investments, investments in subsidiaries and other long term investments.

2.) Is short term borrowings like bank overdrafts and other short term loans treated as;

a. Changes in net working capital, or
b. Financing Cash Flow?

Can somebody help please
 
You don't have any books that cover this??

FCF = Operating Cash Flow - Gross Investment in Operating Capital

or

FCF = Net Operating Profit after Taxes - Net Investment in Operating Capital.
 
Kilimanjaro,
Your response is not clear, I just want to know whether it is "net capital expenditure" or "the overall investment cash flow" you will consider in determining free cash flow. The question is a bit technical because different texts define it in different ways, some say net capital expenditure and others net investment cash flow. To my best of my knowledge net capital expenditure is a component of investment cash flow. Investment cash flow considers other form of investments apart from net capital expenditure, which are, investments in subsidiaries and associated companies, short term investments etc.

And no response to my question number 2!!!

I still need help please...
 
Cash flow available to investors. Its the profit left over after the company finances working capital or operations and fixed assets or investments. If I remember correctly.



Number two is tough.

I'm assuming that overdrafts would finance current assets like inventory, I just don't think that it can be considered as cash flow. The reason for using overdraft privileges is to earn a greater return on your current assets, so I'll guess the answer should be "A".

I'm guessing this is for treasury management or something. Which I should know or I'm in trouble.
 
the common definition of free cash flow is : operating cash flow - net cap ex (NOT net invest. cash flow). FCF is a measure of the cash flow available to shareholders after maintainence cap ex to keep the business going.

short term loans should definitely be classified as financing cash flow. however, i dont know the specific classification of bank overdrafts. it is certainly a part of current liabilities which will affect net working capital. i would think that it should be classified as financing though.
 
Ok. Turns out I was wrong.


"Differences that affect the Consolidated Statement of Cash Flows are that under
US GAAP, bank overdrafts are not considered to be part of net cash equivalents
and any changes in bank overdrafts are included in cash flow from financing
activities."


http://sec.edgar-online.com/2003/06/26/0001193125-03-013117/Section4.asp
 
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