# Free Cash Flow

- Canonical URL: https://www.gerhardmerk.de/free-cash-flow
- Post ID: 603293
- Modified: 2023-07-26T09:12:23+00:00
- Language: en

## Definition

Free Cash Flow (FCF) is a financial metric that represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike earnings or net income, free cash flow is a measure of profitability that excludes the non-cash expenses of the income statement and includes spending on equipment and assets as well as changes in working capital. Free Cash Flow is important because it allows a company to pursue opportunities that enhance shareholder value. For instance, with an adequate amount of FCF, a company can develop new products, make acquisitions, pay dividends to shareholders, and reduce debt. The formula to calculate Free Cash Flow is: Free Cash Flow = Operating Cash Flow - Capital Expenditures Where: - Operating Cash Flow is the cash generated from normal operations of the business. - Capital Expenditures (CapEx) are the funds used by a company to acquire, maintain, and upgrade physical assets such as property, buildings, an industrial plant, or equipment. It's crucial to note that having a positive FCF doesn't necessarily mean a company is financially healthy. Similarly, having a negative FCF isn't inherently bad—it could be indicative of a company making significant investments in its future growth. Therefore, Free Cash Flow should be evaluated in the context of the company's industry, growth phase, and other financial metrics.

## Machine-readable

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