What is Financial Cash Flow (FCF)
The financial cash flow (FCF) is defined as the circulation of cash that shows the inflows and outflows of a capital of a company resulting from its economic activity.
It is also defined as the sum of the economic cash flow, where you can check the profitability of a project, but without taking into account the financing, and the net financing, where the financing is incorporated.
It tends to confuse the cash flow business with the state of income of a company. This latest financial statement follows the accrual basis, that is, recognizes revenues or expenses in how they originate, but the cash flow value immediately after receiving the income or output occurs money. Another difference is that if we consider a depreciation of property, plant, and equipment, such as any furniture and its amortization, cash flow, unlike the statement of income, does not consider a cash outflow but is indirectly charged to income.
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Components of Financial Cash Flow
The components that are integrated into the financial cash flow are as follows:
- Loss of value in goods and raw materials.
- Provision of capital for personnel expenses.
- Losses that are generated by commercial operations.
- Amortization of property, plant, and equipment
- Subsidies for the purchase of nonfinancial fixed assets and some capital grants.
- Surplusof tax provisions, customer collections or commercial operations.
- Impairment of intangible assets and material.
- Losses on transactions in financial instruments as debt short – term loans and all types of financial instruments in which the company invests its excess cash to monetize their
Example of Financial Cash Flow
Let’s look at a simple example of how to calculate financial cash flow.