Free Cash Flow
Abbreviation
FCF
A useful parameter for equity holders, debt holders, stockholders, and convertible security holders to know just how much cash can be extracted from a company without causing issues to its operations, Free Cash Flow is the cash a company produces through its operations, less the cost of expenditures on assets. Similarly, it is the cash leftover after a company pays for its operating expenses and capital expenditures, also known as CAPEX. It is an important gauge to know how efficient a company is at generating cash.
Simple Way to Calculate FCF
- This method is hard to disguise with accounting tricks, adjustments, etc
- FCF = Operating Cash Flow - Capital Expenditures
Free cash flow is what’s left over after paying expenses, taxes and interest on debt
Free cash flow can be used to: