Free Cash Flow (FCF)

What is Free Cash Flow (FCF)?


Free cash flow (FCF) is a measure of a company's financial performance that represents the amount of cash generated by the business after accounting for capital expenditures required to maintain or expand its operations. It is calculated by subtracting capital expenditures (such as investments in property, plant, and equipment) from operating cash flow.

Free cash flow is an important metric for investors and analysts because it represents the cash available to a company for distribution to its shareholders, debt repayment, or investment in growth opportunities. It is also an indicator of a company's financial health, as it reflects the ability of the business to generate cash from its operations and invest in future growth.

A company with positive free cash flow can use the excess cash to pay dividends to its shareholders, reduce its debt, or invest in new products or services. On the other hand, a company with negative free cash flow may struggle to finance its operations and may need to raise additional capital through debt or equity offerings.

Free cash flow is typically reported in a company's financial statements and can be used to evaluate its financial performance over time. It can also be compared to other companies in the same industry to assess relative financial strength and potential investment opportunities.

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