FCF is a measure of
how much cash a business generates from operations, net of capital expenditures,
which it can use for various purposes, such as reducing debt or paying out
dividends. When calculating FCF, we take Cash provided by operating activities
and subtract any capital expenditures. Grossman Lumber generated $102,000 in
cash from operations, and invested 4,000 in capital expenditures, so its FCF is
102,000-4,000= $98,000. We are not concerned with dividends because dividends
are not a capital expenditure.
