Calculation of the components of free cash flow can be tedious, so many rough calculations of free cash flow are offered, including Cash Flow from Operations minus CapEx and EBITDA. However, these can lead you astray for they don’t capture every cash flow. Chapter 13 gives a simple calculation:
Unlike other measures, this is comprehensive; it leaves nothing out. Further, it is not something that has to be calculated: Once you have reformulated balance sheets and income statements as all good value investors have, it just falls out from the OI number and beginning and ending NOA for the period.
An alternative calculation through the financing activities is:
That also drops out from reformulated statements.
