free cash flow tells you

Free cash flow (FCF) = Operating cash flow - Capital expenditures

Unlike net income, FCF excludes non-cash items and accounts for the purchase of capital goods and changes in working capital. This makes FCF a more accurate reflection of a company's ability to generate cash flow for reinvestment, debt repayment, and dividends.

Example

A company with an operating cash flow of 500,000, capital expenditures of 200,000, depreciation of 50,000, and amortization of 30,000 would have a free cash flow of $280,000.

Remember this

Understanding FCF helps investors and creditors assess a company's financial flexibility and its ability to generate cash for future growth, debt repayment, and shareholder returns.

Text adapted from Wikipedia, licensed under CC BY-SA 4.0.

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Educational content, not financial advice.

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