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Free cash flow formula free#
If you’re trying to figure out how healthy a company is, you’ll also want to look at some other measures along with the free cash flow to sales ratio. If everything else looks good as well, then this is a strong company. On its own, this ratio should be used as little more than a signal to look deeper into the company’s financials. You also need to remember that the FCF to sales revenue ratio is not the only measure of a company’s health. They might also manipulate the number by including cash expected to come in the following quarter in the current quarter.Ĭombining that with the decision not to report cash expected to go out can lead to some serious overinflation of the company’s actual free cash flow. While cash based ratios are generally more reliable, it’s important to remember that a company’s total free cash flow can still be manipulated to some degree.įor example, they might be including payments the company has made but that still haven’t been processed as “cash on hand” even though it’s actually been spent already.
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