Operating and Free Cash Flow
A key Figurewizard forecast is that for operating cash flow, describing as it does cash flow generated by a business solely through its core trading or operating activity.
That does not however tell the whole story as cash expenditure arising from you forecast investment in fixed assets is not included in the calculation. Operating cash flow less (the cost of new fixed assets minus the increase / decrease from the previous year of asset finance) will return a “free cash flow” forecast.
How to Calculate Free Cash Flow
For example, starting with the Figurewizard sample forecast for operating cash flow, this is how a free cash flow forecast over three years is calculated.
| Year 1 | Year 2 | Year 3 | |
| Operating Cash Flow | 12,208 | 97,458 | 227.820 |
| less: Fixed Assets Acquired @ Cost | 55.000 | 15,000 | 50,000 |
| add: Increase / Decrease in Asset Financing | 32,915 | -11,638 | 9.762 |
| Forecast Free Cash Flow | -9,877 | 70,821 | 187,582 |
Free Cash Flow Deficits
Unlike most measures of cash flow a free cash flow (FCF) forecast indicating a deficit as in year 1 on the example is not always bad news. Every successful business will be expected to need to invest for growth.
The trick is to measure fixed asset purchases. Persistent free cash flow deficits over the course of a few years, especially if accompanied by pressures on forecasts for monthly bank and cash flows. Fixed assets will always represent a charge against liquidity and cash, however it is being calculated.