Understanding Free Cash Flow in Equity Valuation

Very Easy Equity Valuation Techniques Free Cash Flow Models

Free Cash Flow (FCF) models are commonly used in equity valuation to determine the intrinsic value of a company. An important aspect of FCF models is understanding how to calculate the Free Cash Flow from the financial statements. Which of the following statements best describes the primary components used in calculating Free Cash Flow?

Free Cash Flow is calculated as net income plus depreciation minus capital expenditures.

Free Cash Flow is derived from operating cash flow minus changes in working capital.

Free Cash Flow is calculated as cash flow from operations minus cash flow from investing activities.

Hint

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