Free Cash Flow

Finance

Quick Definition

Free Cash Flow (FCF) is the cash a company generates after covering its operating expenses and capital expenditures, available for investors, debt repayment, or reinvestment.

Detailed Explanation

Free Cash Flow shows how much actual cash is left after a company maintains or expands its assets. It is a key indicator of financial strength and liquidity.

Unlike accounting profit, FCF focuses on real cash available, making it crucial for investors and analysts.

Formula

👉 FCF = Operating Cash Flow – Capital Expenditure (CapEx)

Why Free Cash Flow Matters

  • Indicates financial health
  • Shows ability to pay dividends
  • Helps in debt repayment
  • Used in company valuation

Interpretation

  • Positive FCF: Strong cash generation
  • Negative FCF: High investment or weak cash flow

FCF vs Net Profit

  • FCF: Actual cash available
  • Net Profit: Accounting profit (may include non-cash items)

Example

"If a company generates ₹50 lakh operating cash and spends ₹20 lakh on assets: 👉 FCF = ₹30 lakh"

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