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My question is a nuance of free cash flow. Officially the definition of FCF is Cash from Operations - Capital Expenditures, but I've also seen it where you additionally subtract the cash paid out in dividends over the same period.

This article says to do it that way: http://www.forbes.com/investmentnewsletters/2004/02/11/cz_rm_0211soapbox.html

I understand that FCF is the total amount of cash that COULD be paid as a dividend, so I see why you might want to exclude the current dividend. If a firm has tons of FCF beyond the dividend then it has room to grow without having to cut the dividend. Or, if it's has lots of FCF, but it's spending all of it on a massive dividend, then maybe it won't be able to pay the dividend much longer.

On the other hand, if you want to do discounted cash flow analysis for valuation, I think you'd want to know the total amount of cash thrown off by the business whether it's a current dividend or not, so when you multiply it by the growth rate your numbers aren't artificially reduced.

Can someone clarify this? Is it "CFO - capex" or "CFO - capex - dividends". Why the confusion?

Thanks
Dan
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