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Free Cash Flow
The free cash flow tells us if a company is generating enough cash from its operations to finance its capital expenditures and dividends.
Interpreting Free Cash Flow
- Positive: This means the company can afford its capital expenditures and dividends using cash generated by its operations.
- Sign of a financial strength
- Negative: This means the company relies on non-operating cash flows to pay for capital expenditures and dividends.
- This is not sustainable in the long-run
- Possibly a sign of financial weakness
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Example: Free Cash Flow
Calculate the free cash flow for Nike, Inc. for the year ended May 31st, 2020.
Practice: Free Cash Flow
Calculate the free cash flow for Microsoft for the year 2019
Free cash flow in 2019