# Calculating Free Cash Flow: Identifying Methods Used By Mainstream Sites

by: Eric Sprague

The easiest way to understand the way various websites come up with the free cash flow number is to use examples. Some sites back out dividends and others do not. Also, sites vary in terms of what they back out as capital expenditures.

1. Let's use AAPL as the first example.

Looking at the 10-K for the fiscal year ending September 29, 2012, we go to the cash flow statement on page 46 and see the following (in millions):

50,856 Cash generated by operating activities

(8,295) Payments for acquisition of property, plant and equipment

(1,107) Payments for acquisition of intangible assets

(2,488) Dividends and dividend equivalent rights paid

We see that www.gurufocus.com/financials/AAPL subtracts 8,295 from 50,856 to show their free cash flow number of 42,561.

Morningstar adds intangibles to their capital expenditure total. In other words, quote.morningstar.com/stock/s.aspx?t=aapl

shows 41,454 for free cash flow which is 50,856 minus 8,295 minus 1,107.

Yahoo uses a ttm number that is out of date. Their ttm = Trailing Twelve Months (as of Sep 29, 2012) footnote is after the Oct 31 filing date of the latest 10-K which implies that we'd have to add the 2011 q4 to the 2012 q3 ytd in order to reconcile their number.

40.07 B is the number we see at quotes.wsj.com/AAPL/financials and the investing/stock/aapl/financials/cash-flow page at marketwatch.com. They subtract the 2,488 dividends and the 8,295 pp&e from the 50,856.

2. We'll use GIS for our second example.

Looking at the 10-K for the fiscal year ending May 27, 2012, we go to the cash flow statement on page 56 and see the following (in millions):

2,402.0 Net cash provided by operating activities

(675.9) Purchases of land, buildings, and equipment

2.2 Proceeds from disposal of land, buildings, and equipment

(800.1) Dividends paid

Subtracting 675.9 from 2,402.0, we get 1,726.1.

1,728 is the number we see at www.gurufocus.com/financials/GIS. They add the 2.2 proceeds back in.

1,726 is the number shown by quote.morningstar.com/stock/s.aspx?t=gis.

1.72B is the Levered Free Cash Flow ttm number shown at finance.yahoo.com/q/ks?s=GIS+Key+Statistics.

926 M is the number we see at quotes.wsj.com/gis/financials and the investing/stock/gis/financials/cash-flow page at marketwatch.com. They subtract the 800.1 dividend from 1,726.1 to arrive at this figure.

3. We'll use ADP for our final example.

Looking at the 10-K for the fiscal year ending June 30, 2012, we go to the cash flow statement on page 45 and see the following (in millions):

1,910.2 Net cash flows provided by operating activities

(140.1) Capital expenditures

71.6 Proceeds from the sale of property, plant and equipment and other assets

(739.7) Dividends paid

1,842 is the number at www.gurufocus.com/financials/ADP. This is 1,910.2 minus 140.1 plus 71.6.

1,661 is the number at quote.morningstar.com/stock/s.aspx?t=adp. This is 1,910.2 minus 140.1 minus 109.5.

The Yahoo number requires 10-Q filings because their

ttm = Trailing Twelve Months (as of Sep 30, 2012) but the 10-K only takes us through June 30, 2012.

1.03 B is the number at quotes.wsj.com/adp/financials and 1.04 B is the number at marketwatch.com on their investing/stock/adp/financials/cash-flow page. 1,910.2 minus 140.1 minus 739.7 is 1,030.4.

One has to be careful about relying on third party sites for things like free cash flow. Yes, they provide a service by summarizing information but there is no substitute for going directly to the 10-K filing. Edgar makes it easy for people to access these filings. Just go to www.sec.gov/ and search for the ticker symbol of your choice. One of the bonuses of going directly to the 10-K filings is that items like stock based compensation are spelled out for investors on the cash flow statement. In the case of AAPL we see 1,740 as the Share-based compensation expense. 108.3 is the Stock-based compensation number for GIS. 78.7 is the Stock-based compensation expense number for ADP.

All free cash flows are not equal. One of the reasons for this is that we typically don't know how much of the capital expenditures are used to maintain the business and how much of the capital expenditures are used to grow the business. Still, understanding the free cash flow calculation and the numbers behind it is important.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Any material in this article should not be relied on as a formal investment recommendation.