Differentiate between cash flow and free cash flow.

The major differences between cash flow and free cash flow are as follows −

Cash flow

  • Finds operating cash inflow and activities of finance and investments of the business.
  • Net cash inflows are calculated.
  • Liquidity of company is determined.
  • It has broad scope.
  • Operating, investing and finance cash flows are used in calculating cash flows.
  • It gets difficult to find out cash flow when, both more than one cash and non-cash transactions are taken place.
  • Not much time is needed.
  • Used in financial accounting.
  • Income statement is required for calculation purpose.

Free cash flow

  • Finds Prevent value of business.
  • Valuation of business (investors) is calculated.
  • Financial health of the company is determined.
  • Limited scope.
  • EBIT, Capital expenditure, working capital are used in calculations.
  • Calculation of individual parameters is difficult.
  • Depends on available information, time taken is calculated.
  • Calculated in DCF model.
  • Income statements are required for calculating purpose.

Updated on: 26-Sep-2020


Kickstart Your Career

Get certified by completing the course

Get Started