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What is the free cash flow ratio?

The free cash flow ratio is an amount, rather than a ratio.

The free cash flow calculation often begins with the cash flow from operating activities shown on the statement of cash flows (SCF). Next the amount of capital expenditures, taken from the investing activities section of the SCF for the same period, is deducted to arrive at the amount of free cash flow.

There are variations of the above calculation. For example, the dividends to stockholders might be viewed as a requirement and will be deducted along with the capital expenditure amount.

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