Corporate FinanceFinancial Glossary
Free Cash Flow
Definition
The cash a company generates after accounting for capital expenditures required to maintain or expand its asset base. Calculated as Operating Cash Flow minus Capital Expenditures. Free cash flow represents the money available for dividends, debt repayment, share buybacks, or new investments.
Why It Matters
Free cash flow is a more reliable indicator of financial health than reported profits because it is harder to manipulate through accounting tricks. Companies with consistently high free cash flow can sustain dividends and growth. Negative free cash flow over multiple years is a red flag, especially for non-growing companies.