FCF - Financing CF
hi,
i've one question regarding FCF. I've read a couple of time that the sum of operating and investing is referred to as FCF which is mainly clear. But what about potential increases in liabilities/debt regarding my financing cash flow? So they could also be distributed to shareholders/equity/debt holders.
thanks for your help!
For your question it is important to go back to the definition of FCF.
Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets (this can include a minimal growth number) For that reason FCF often does not actually include a lot of the investing cash flows for a growing business. It also does not include the financing cash flows as we are assessing the operations of a business. If the business is losing money, money is likely coming in via the financing cash flows (or has and the company has significant cash and equivalents on its balance sheet) - however, the operations of the business are still producing negative cash flows and maintaining assets is still making those cash flows more negative.
Amazon is actually a company that has placed a large emphasis on its free cash flows and the first three pages of their earnings presentation from last week look at FCF in different ways; https://s2.q4cdn.com/299287126/files/doc_financials/2020/q3/Webslides_Q320_Final.pdf
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