Free Cash Flow

Last Updated: Jun 7, 2019

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Free Cash Flow (FCF) is a measure of financial performance that shows how much cash a business generates after accounting for capital expenditures, which is a fundamental basis for stock pricing.

Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base and is important because it allows a company to pursue opportunities that enhance shareholder value. This cash can be used for expansion, dividends, reducing debt, or other purposes.

High or rising free cash flow is often a sign of a healthy company that is thriving in its current environment.

FCF is calculated as:

FCF = EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure

or

FCF = Operating Cash Flow - Capital Expenditures