The formula for free cash flow is provided below:
Free Cash Flow = NI + (D/A) - ΔWC - CE
Where
NI is the net income, which is the profit or loss incurred by the company after deducting all of its expenses.
D and A are depreciation and amortisation, respectively. Depreciation represents the decrease in the value of a current asset over time. On the other hand, amortisation refers to the spreading of the cost of an intangible asset over its lifetime.
ΔWC is the change in working capital. Working capital refers to the money used by a business for running its daily activities.
CE is the capital expenditure, which represents fixed business assets, such as land and equipment.