Best examples of free cash flow example calculation: a complete guide

Let’s skip theory and go straight into the kinds of examples of free cash flow example calculation: a complete guide you’d actually use when analyzing a company. We’ll start with the classic formula:

Free Cash Flow (FCF) = Cash Flow from Operations − Capital Expenditures (CapEx)

Cash flow from operations (CFO) comes from the cash flow statement. Capital expenditures usually appear as “Purchases of property, plant and equipment” or “Additions to fixed assets.”

We’ll use simplified, rounded numbers that mirror real public-company disclosures.

Example of free cash flow for a mature consumer company

Imagine StableCo, a large, slow-growth consumer products company. Here’s a simplified snapshot for 2024 (in millions):

• Net income: $1,000
• Depreciation & amortization: $300
• Change in working capital: \((50)\) (meaning working capital increased and used cash)
• Cash flow from operations: $1,250
• Capital expenditures: $400

Step-by-step free cash flow example calculation:

1. Start with CFO: $1,250
2. Subtract CapEx: \(1,250 − \)400 = $850 FCF

This is one of the cleanest examples of free cash flow example calculation: a complete guide because there are no exotic adjustments. For a mature company, investors often compare FCF to:

• Dividends paid
• Share repurchases
• Debt repayment

If StableCo paid \(500 in dividends and \)200 in buybacks, that $850 of free cash flow comfortably covers both. That’s exactly the kind of pattern long-term income investors hunt for.

High-growth tech: examples include stock-based comp and heavy reinvestment

Growth companies often show strong revenue and weak accounting profits, but solid cash generation. Consider CloudFast, a 2024-style SaaS company:

• Net income: $50 million
• Depreciation & amortization: $40 million
• Stock-based compensation: $120 million
• Change in working capital: \((30)\) million
• Cash flow from operations: $180 million
• Capital expenditures: $60 million

FCF calculation:

• FCF = CFO − CapEx = \(180 − \)60 = $120 million

Here’s where the nuance matters. Many investors treat stock-based compensation as a real economic cost because it dilutes shareholders over time. So they’ll run an adjusted free cash flow example calculation:

Adjusted FCF = (CFO − Stock-based compensation) − CapEx
Adjusted FCF = (\(180 − \)120) − \(60 = \)0

This is one of the best examples of why you can’t just memorize a formula. On the surface, CloudFast looks like a strong cash generator. Once you adjust for stock-based pay, it’s barely breaking even. In 2024–2025, with higher discount rates and more scrutiny on tech valuations, many institutional investors lean heavily on this kind of adjusted free cash flow example calculation.

Capital-intensive industry: example of free cash flow in an energy company

Now look at DrillCore Energy, a capital-intensive business that must constantly reinvest:

• Cash flow from operations: $5.0 billion
• Capital expenditures: $4.2 billion
• Asset sale proceeds: $0.3 billion

Base FCF (using the standard formula):

• FCF = \(5.0 − \)4.2 = $0.8 billion

Some analysts will calculate free cash flow including asset sales:

• FCF (incl. asset sales) = \(5.0 − \)4.2 + \(0.3 = \)1.1 billion

This is a good example of free cash flow where context matters:

• If asset sales are recurring (e.g., selling non-core fields every year), adding them back might be reasonable.
• If they’re one-off, relying on that $0.3 billion to justify a valuation is dangerous.

In 2024, many oil & gas companies are returning large portions of FCF to shareholders through variable dividends and buybacks. You can see this trend in investor presentations and in the data from the U.S. Energy Information Administration (EIA) and company 10-K filings on SEC.gov.

Example of free cash flow when working capital swings wildly

Some businesses, especially retailers, have big seasonal working capital moves. Consider MegaMart, a large retailer:

2024 figures (in millions):

• Net income: $600
• Depreciation & amortization: $250
• Increase in inventory: \((300)\)
• Increase in accounts payable: $150
• Other working capital changes: \((50)\)
• Cash flow from operations: $650
• Capital expenditures: $500

FCF calculation:

• FCF = \(650 − \)500 = $150 million

Now imagine next year the company reduces inventory to run leaner:

2025 figures:

• Cash flow from operations: $950
• Capital expenditures: $520
• FCF = \(950 − \)520 = $430 million

On the surface, FCF almost triples. But a big chunk of that is from releasing working capital, not from sustainable operational improvement. This is a textbook example of free cash flow example calculation that looks fantastic in one year but normalizes over a cycle.

When you build your own examples of free cash flow example calculation: a complete guide, always ask: is this working capital benefit repeatable or a one-time release of cash?

Real examples: comparing a utility vs. a software platform

To make this feel closer to real life, let’s sketch two 2024-style company profiles:

UtilityCo (regulated utility)

• Cash flow from operations: $8.0 billion
• Capital expenditures: $7.2 billion
• FCF = \(8.0 − \)7.2 = $0.8 billion

Utilities often show low free cash flow because they pour money into long-lived infrastructure. Regulators allow them to earn a return on this capital, so low current FCF isn’t necessarily a red flag. Analysts often look at FCF after dividends to see if the payout is sustainable.

SoftPlatform (large, mature software company)

• Cash flow from operations: $22.0 billion
• Capital expenditures: $4.0 billion
• FCF = \(22.0 − \)4.0 = $18.0 billion

This is one of the best examples of free cash flow example calculation for a high-margin, asset-light business. Heavy use of cloud infrastructure and low physical asset needs lead to huge FCF margins.

In 2024–2025, with interest rates still higher than the 2010s, markets tend to reward companies like SoftPlatform that generate strong free cash flow and don’t depend heavily on cheap debt to fund CapEx. You can see this shift in valuation spreads across sectors in research from institutions such as the Harvard Business School and other academic finance departments.

Free cash flow to firm vs. free cash flow to equity: a quick example

Most of the examples of free cash flow example calculation: a complete guide so far have used the simple FCF formula. In valuation work, analysts often distinguish:

• Free Cash Flow to the Firm (FCFF) – cash available to all capital providers (debt and equity)
• Free Cash Flow to Equity (FCFE) – cash available just to equity holders after debt flows

A common FCFF formula is:

FCFF = EBIT × (1 − Tax rate) + Depreciation & amortization − CapEx − Change in working capital

Suppose IndusCorp has:

• EBIT: $2,000 million
• Tax rate: 25%
• Depreciation & amortization: $400 million
• CapEx: $700 million
• Increase in working capital: $100 million

FCFF calculation:

• EBIT × (1 − Tax) = \(2,000 × 0.75 = \)1,500
• Add D&A: \(1,500 + \)400 = $1,900
• Subtract CapEx: \(1,900 − \)700 = $1,200
• Subtract change in working capital: \(1,200 − \)100 = $1,100 million FCFF

If IndusCorp also has net borrowing (new debt − repayments) of $200 million, you can approximate:

FCFE ≈ FCFF − Interest × (1 − Tax) + Net borrowing

While this is a simplified example of free cash flow to firm vs. equity, it shows how FCF shifts depending on whose perspective you care about.

For a more formal treatment of these cash flow concepts, many finance courses and textbooks from institutions like MIT OpenCourseWare walk through the math in detail.

How 2024–2025 trends affect free cash flow calculations

The formula hasn’t changed, but the environment has. When you build your own examples of free cash flow example calculation: a complete guide, keep these current trends in mind:

Higher interest rates

Higher rates raise the cost of debt, which:

• Pushes companies to favor projects with faster paybacks and stronger FCF profiles.
• Reduces the appeal of “growth at any cost” strategies where free cash flow is negative for years.

You’ll see more management teams talk about “disciplined capital allocation” and “FCF conversion” in earnings calls and investor days.

CapEx cycles and reshoring

Manufacturing, semiconductors, and infrastructure are in the middle of heavy investment cycles, partly due to policy incentives and reshoring. That often means:

• Depressed FCF today due to large CapEx
• The expectation (not guarantee) of higher FCF later

When you run your own example of free cash flow for these companies, it’s worth building a simple forecast: FCF today, FCF during the build-out, and FCF once assets are fully online.

Subscription and recurring revenue models

More companies are shifting to subscription models. That affects:

• Working capital (more predictable receivables, often paid upfront)
• The stability of CFO and, by extension, FCF

Investors often give higher valuation multiples to companies whose free cash flow examples include stable, recurring cash flows versus one-off project-based revenue.

Building your own best examples of free cash flow example calculation

If you want to get comfortable with this topic, the fastest way is to pick a few real companies and recreate the examples of free cash flow example calculation: a complete guide we’ve walked through using actual filings.

Here’s a simple workflow you can follow in plain language:

• Download a company’s annual report or 10-K from SEC.gov.
• Go to the consolidated statement of cash flows.
• Find “Net cash provided by operating activities” (that’s CFO).
• Find “Purchases of property, plant and equipment” or similar (that’s CapEx).
• Subtract CapEx from CFO. That’s your base FCF.
• Then experiment with adjustments: stock-based comp, asset sales, restructuring charges, etc.

Repeat this for a tech company, a utility, a retailer, a manufacturer, and an energy company. Within a weekend, you’ll have built your own library of real examples of free cash flow example calculation that will stick in your brain much better than any formula sheet.

For background on how cash flow connects to business health, the U.S. Small Business Administration and university finance departments (for example, Harvard Business School) publish accessible guides that complement the numeric work you’re doing.

FAQ: examples of free cash flow and common questions

What’s an example of free cash flow in a simple small business?

Imagine a local manufacturing shop with:

• Cash flow from operations: $500,000
• Capital expenditures: $150,000

Free cash flow = \(500,000 − \)150,000 = \(350,000. That \)350,000 can be used to pay down loans, distribute to the owner, or reinvest. This is one of the most intuitive examples of free cash flow because the cash is literally what’s left after running and maintaining the business.

Are the best examples of free cash flow always positive?

No. Some of the most interesting examples of free cash flow example calculation show negative FCF, especially in early-stage or high-growth companies. Negative FCF can be healthy if:

• The company is investing heavily in projects with attractive future returns.
• Management has access to funding (equity or debt) on reasonable terms.

But if a mature business shows persistently negative FCF, that’s often a warning sign that earnings quality is weak or that maintenance CapEx is higher than management admits.

How do I know whether to trust a company’s free cash flow metric?

Many companies report their own version of FCF as a non-GAAP measure. When you see this, always:

• Recreate the calculation yourself from the cash flow statement.
• Check what management is excluding (e.g., restructuring, litigation, stock-based comp).
• Compare to your own examples of free cash flow example calculation: a complete guide built from raw numbers.

If the company’s version is always much higher than your straightforward calculation, you should be skeptical.

Where can I find reliable data to practice free cash flow examples?

For U.S. public companies, the primary source is SEC.gov filings (10-K, 10-Q). Many universities, including MIT and Harvard, publish teaching materials that walk through real-company case studies. Those resources pair nicely with the kind of real examples of free cash flow example calculation we’ve covered here.

Free cash flow isn’t complicated, but it is unforgiving. Once you’re comfortable reading cash flow statements and running your own examples of free cash flow example calculation: a complete guide, you’ll see through a lot of the storytelling in earnings calls and investor decks. The math is simple. The discipline to do it yourself is where the edge comes from.