Free Cash Flow (FCF)
Cash generated after capital expenditure, available for debt repayment, dividends, or reinvestment
What is Free Cash Flow (FCF)?
Free cash flow is the cash a business generates after paying for the investment needed to maintain and grow its assets. It shows how much cash is genuinely available to pay debt, pay owners or invest further.
Unlike profit, it cannot be shaped by accounting choices as easily, so it is a robust measure of financial strength.
How this KPI is measured
- Function
- Finance
- Sub-function
- Cash Flow Management
- Industry
- All Industries
- Type
- Lagging
- Impact
- Financial control
- Unit
- $
- Measurement frequency
- Monthly / Quarterly
- Formula
- Operating cash flow − Capital expenditure
How to calculate it
Subtract capital expenditure from operating cash flow.
For example, if operating cash flow is 5,000,000 and capital expenditure is 2,000,000, free cash flow is 3,000,000.
Consider trends over several years, since a single year can be affected by big one-off investments or working capital swings.
Where it is used
Judging financial strength
See real cash generation.
Planning distributions and investment
Know what is available.
Valuing the business
Investors rely on it.
How to improve it
Tips and common mistakes
- Negative free cash flow is not always bad if it funds good growth.
- Separate maintenance from growth capex if you can.
- Watch working capital swings.
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