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Chapter 4 — Non-GAAP Measures That May Be Misleading or Prohibited and Other Considerations Related to Common Non-GAAP Measures

4.11 Presentation of Free Cash Flow

4.11 Presentation of Free Cash Flow

Free cash flow is a non-GAAP measure, commonly defined as cash flows from operating activities as presented in the statement of cash flows less capital expenditures. According to C&DI Question 102.07, the measure does not violate the liquidity measure prohibition of Item 10(e) even though some of the capital expenditures may have been or will be paid in cash. In addition to capital expenditures, other adjustments may also be used to derive free cash flow. C&DI Question 102.07 notes that the measure is not uniformly defined, and its title does not describe how it is calculated. Therefore, registrants must clearly describe how free cash flow is calculated and disclose the other information required by Item 10(e), including a reconciliation.