I am trying to calculate free cash flow and conduct DCF analysis. How do you calculate the net investment as per DCF Analysis: Forecasting Free Cash Flows | Investopedia for Microsoft in 2012? The article states that you can calculate net investment by taking capital expenditure, disclosed in a company's statement of cash flows, and subtracting non-cash depreciation charges, found on the income statement.
Should I take the "Net cash used in investing" in MSFT's 2012's cash flow statements and deduct "Depreciation, amortization, and other noncash items" (which is also found in the cash flow statement instead of the income statement) from it? This will give me a positive value.
Or do I take the Cap Spending ("Additions to property and equipment" in the cash flow statement) and deduct "Depreciation, amortization, and other noncash items" from it? (which is suggested by the article.) However, doing so will give me a negative value, which doesn't make sense at all.
Additional question that I have, based on the formula listed on investopedia, I can't get the free cash flow figures on Morningstar. It seems MorningStar did not use the "net cash use in investing" but merely use the Cap Exp figures. Is that correct or is the formula for DCF on investopedia wrong?