Free cash flow calculation

[lippy]

Free cash flow is required to determine intrinsic value , assumption.

but why is that free cash flow= cash from from operation - capex?

why is the need to subtract the cash from operation to capex?
capex is capital expenditure. While capex maybe in the form of amortization, in can also be in the form of another new investment funding. Maybe new funds used for new factory?


I just don't get it.

Investors suggesting that we should use FCF instead of net income. but why? how to use the proper calculation of FCP?



What do you think guys??

[EvaluatingStocks]

Hi Lippy - investors typically use FCF since it is a measure of actual cash vs. net income (which contains a variety of accounting items such as depreciation and amortization which can be more easily manipulated, etc.). Also, capex is subtracted from operating cash flows because it is seen as a necessary cost to sustain the business. All of the cash left over represents the money management has available to grow the business. Hope that helps!

[Stocktrading101]

These links may help a bit too from investopedia,

Free Cash Flow (FCF)

Intrinsic Value

Capital Expenditure (CAPEX)

Might have to read through them but all three terms you mention above are broken down and defined.