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In the following example, there is a positive change in working capital amount of $10,000,000, yet when calculating free cash flow, that number is subtracted from net operating profit. So to get free cash flow, you subtract positive change in net working capital and add negative change in net working capital?
The following information is available for Armstrong Enterprises:
Net operating profit (income) after taxes $36,000,000
Depreciation expense 15,000,000
Change in net working capital 10,000,000
Capital expenditures 10,000,000
Invested capital (TA ā CL) 90,000,000
Weighted-average cost of capital 10%
Free cash flow would be computed as follows:
Net operating profit (income) after taxes $ 36,000,000
Plus: Depreciation expense + 15,000,000
Less: Change in net working capital (10,000,000)
Less: Capital expenditures (10,000,000)
Free cash flow $31,000,000
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