free cash flow tells you

Ever wonder how much cash a company really has left after all its big purchases?

Imagine you're planning a big party. You have to buy decorations, food, and drinks. After all these expenses, how much money will you have left for entertainment?

Free cash flow is like the money you have left after buying everything for your party. It's the cash a company has after paying for new equipment and other big expenses.

Example

A company earns 100,000, spends 30,000 on new machines, and 20,000 on other expenses. Free cash flow is 50,000.

Remember this

Free cash flow shows how much money a company has after covering its big investments.

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

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Educational content, not financial advice.

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