A:

It's relatively simple and straightforward to calculate free or operating cash flow in Microsoft Excel; each only needs a few cell data entries and a short formula. Calculating discounted cash flow (DCF) is a little more involved and requires specific functions to calculate the present and future value of assets.

## Operating Cash Flow

Operating cash flow, which tracks the net cash flow from business operations, can be found on a company's cash flow statement. In Excel, add a value in different cells for each way in which the company receives revenue from operations (such as cash receipts) and subtract their sum from the sum of net cash outflows (such as wages or material).

## Free Cash Flow

Free cash flow (FCF) is calculated as earnings before interest and taxes (EBIT) multiplied by (1 - tax rate), plus depreciation and amortization and less capital expenditures. All of these figures can be found in a company's financial statement.

An alternative method of figuring FCF is to subtract all capital expenditures from the operating cash flow from above.

## Discounted Cash Flow

To find a company's DCF, you should first find its normal cash flows and its discount rate. Cash flows can be the same as the FCF from above or any flow from which a hypothetical investor could be paid (dividends, repayments, interest). The discount rate should be equal to the hypothetical investor's required rate of return.

DCF models normally span five or more years, so you need annual cash flow for at least five years. These should be entered separately into different cells and multiplied by the discount rate. This returns the discount factor for each year at (1 + discount rate) * (years from present). Divide the annual cash flow by the discount factor to find a company's DCF.

For example, a company with cash flows equal to \$100 and a discount rate of 10% has a discount factor of 1.1 and a DCF of \$90.91 for the first year.

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