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Free cash flow

Operating cash flow minus capital expenditure: the cash left over after keeping the business running and investing in it, available to fund debt, dividends and buybacks.

Free cash flow is the number most valuation work ultimately cares about, because it is what owners can actually take out. It is harder to manipulate than net-income, though not impossible: stretching accounts-payable or capitalising costs both flatter it.

Definitions vary. Some subtract only capex; others also subtract acquisitions, leases or stock-based pay. State your definition, and use the same one on both sides of any comparison such as free-cash-flow-yield.

Example: Northwind Tools generates $164M of operating cash flow and spends $75M of capex, so free cash flow is $89M, 10.6% of revenue and $0.93 a share on 96 million shares.

Related: operating-cash-flow, capex, fcf-margin, free-cash-flow-yield, unlevered-free-cash-flow

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