There are almost as many definitions of cash flow as there are companies! However, the trend is toward standardisation under the following main headings:

• Cash flow from operations, which is found in the cash flow tables now published by almost all listed companies. This is equal to:

  Net profit
  + net depreciation and provisions on fixed assets
  - capital gains on disposals
  + capital losses on disposals
  - change in working capital requirement
  = Cash flow from operations
  This is indeed a cash flow, but not a purely operating cash flow, as it includes financing costs. But at a time of relatively low debt and interest rates, this is a minor drawback. It mainly serves as a basis of financial analysis.

• Free cash flow is the cash flow generated by operating assets, which then belongs to those who have financed the operating assets, i.e. the shareholders and the lenders (banks and bondholders). It is calculated as follows:

  EBITDA
  - EBIT
  - change in working capital requirement
  - investments net of divestitures
  = Free cash flow
  This is the purest form of cash flow and is used in assessing a company's value on the basis of its discounted cash flow (DCF). It is also called cash flow to firm.
   

• Cash flow to equity is the same as free cash flow, minus the cash flow that belongs to lenders, i.e. net financing costs after standard tax and the change in net bank and financial debt. It is also used to assess equity value. However, we would advise against using it, except in certain cases, as we prefer free cash flow by far.
• Cash flow is sometimes defined as net profit + net depreciation and provisions on fixed assets -/+ capital gains/losses on disposals, for example in calculating price/cash flow multiples. This is erroneous, as cash flow is just that, while the above definition is only cash flow if customers pay up, and suppliers are paid, immediately and if inventories are nil, or if these three items are constant over time, which is almost never the case!
• EBITDA (earnings before interest, tax, depreciation and amortisation) is sometimes called cash flow, but it doesn't reflect taxes and changes in working capital requirement…