I'd like some thoughts to clarify a doubt that has been troubling me for the past few days. I've read many reputed sources that free cash flow can be computed as = Cash Flow from Operations + Interest Expense (1-tax rate) - Capital Expenditure. But many analysts ignore the interest component and calculate FCF as Cash Flow from Operations minus Capital Expenditure. Is it correct to add interest expense this way to estimate FCF? Specifically, what is the correct method when CFO is reported under US GAAP, where interest paid is included as an operating activity in the cash flow statement?
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