How to calculate free cash flow from a 10-K

Free cash flow isn't a line item in SEC filings. Here's the formula, where to find the inputs in the cash flow statement, and the adjustments to watch for.

Free cash flow is one of the most cited numbers in valuation, and it appears nowhere in a company's SEC filings as a line item. You compute it yourself from two figures that are both in the cash flow statement of any 10-K or 10-Q.

The formula

Free cash flow = cash flow from operations minus capital expenditure (FCF = CFO − CapEx). It's the cash a business generates after spending what it needs to maintain and grow its asset base — the cash actually available to pay down debt, buy back stock or sit on.

Where to find the inputs

• CFO — 'Net cash provided by operating activities', the subtotal at the bottom of the operating-activities section of the cash flow statement.
• CapEx — usually 'Purchases of property, plant and equipment' (and sometimes capitalised software) in the investing-activities section. It's reported as a negative number, so you subtract its absolute value.

Pulling it automatically

Rather than dig the two figures out of every filing by hand, you can read them straight from the companyfacts data. Finterm is a free SEC EDGAR viewer that computes FCF = CFO − CapEx on the wire from a company's own reported us-gaap numbers, per quarter, with no proprietary 'adjusted' figures in between.