Free Cash Flow The focus on traditional financial statements is accounting : data rather than cash flow. However, cash flow is important to investors, managers, and stock analysts. Therefore, decision makers and security analysts need to modify financial statement data provided to them. An important modification is the concept of free cash flow (FCF). Many analysts regard FCF as being the single and most important number that can be developed from the income statements, even more important than net income. The equation for free cash flow is: FCF = [EBIT(1 - T) + Depreciation and amortization] - [Capital expenditures + ANet operating working capital] : cash flow is the cash flow actually available for payments to all investors (stockholders and debtholders) after the company has made investments in fixed assets, new Free products, and operating working capital . A negative FCF means that the company does not have sufficient internal : funds to finance its investments in fixed assets and working + markets to pay for these investments. Negative FCF is not always bad. If FCF is negative because after-tax capital, and that it will have to raise new money in the capital operating income is negative this is bad, because the company is probably experiencing operating problems. Exceptions to this might be startup companies, companies incurring significant expenses to launch a new product line, and high-growth companies-with large capital investments. Quantitative Problem: Rosnan Industries' 2013 and 2012 balance sheets and income statements are shown below. Balance Sheets: 2013 2012 $100 $85 Cash and equivalents Accounts receivable 275 300 Inventories 375 250 $750 $635 Total current assets Net plant and equipment 2,300 1,490 $3,050 $2,125 Total assets Accounts payable $150 $85 Accruals 75 50 Notes payable 150 75 $375 $210 Total current liabilities Long-term debt 450 290 Common stock 1,225 1,225 Retained earnings 1,000 400 $3,050 $2,125 Total liabilities and equity Income Statements: 2013 2012 $2,800 $1,200 Sales Operating costs excluding depreciation 1,250 1,000 $1,550 $200 EBITDA Depreciation and amortization 100 75 $1,450 $125 EBIT Interest 62 45 EBT $1,388 $80 Taxes (40%) 555 32 $833 $48 Net income Dividends paid $53 $48 Addition to retained earnings $600 $0 Shares outstanding 100 100 $25.00 $22.50 Price WACC 10.00% The balance in the firm's cash and equivalents account is needed for operations and is not considered "excess" cash. Using the financial statements given above, what is Rosnan's 2013 free cash flow (FCF)? Use a minus sign to indicate a negative FCF