What is free cash flow?

  is a financial metric that represents the amount of cash a company generates after covering its operating expenses and capital expenditures. It is essentially the surplus cash available for discretionary use, such as reinvestment, debt repayment, or distribution to shareholders. FCF is a crucial indicator of a company's financial health and sustainability, providing insight into its profitability and efficiency.

1. : This is the cash generated from a company's core operations, such as sales and services.

2. : These are investments in assets like property, equipment, and other major investments necessary for maintaining or expanding operations.

The most common formula for calculating FCF is:

$\text{FCF} = \text{Operating Cash Flow} - \text{Capital Expenditures}$

• : FCF helps assess a company's ability to sustain operations, invest in growth, and maintain financial stability.

• : Investors use FCF to evaluate a company's profitability and potential for future growth.

• : Positive FCF indicates that a company can repay debts or distribute dividends to shareholders.

• : This includes cash available to all stakeholders, including equity holders and debt holders.

• : This is the cash available specifically to equity holders after debt payments.

Overall, free cash flow is a vital metric for understanding a company's financial flexibility and its ability to generate cash beyond its operational needs.

Citations:

1. https://www.investopedia.com/terms/f/freecashflow.asp
2. https://en.wikipedia.org/wiki/Free_cash_flow
3. https://www.investopedia.com/ask/answers/033015/what-formula-calculating-free-cash-flow.asp
4. https://www.bajajfinserv.in/free-cash-flow
5. https://www.fathomhq.com/kpi-glossary/free-cash-flow
6. https://corporatefinanceinstitute.com/resources/valuation/fcf-formula-free-cash-flow/
7. https://quickbooks.intuit.com/r/cash-flow/free-cash-flow/
8. https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-guides/glossary/free-cash-flow