Dictionary / How companies make money
What Is Free Cash Flow?
Free cash flow, or FCF, is the real cash a company has left after paying to run the business and to keep it growing. It is money the company can freely use.
Free cash flow in simple terms
Think of your own salary. After rent, food and fixing your car, what is left is your free cash. A company works the same way. FCF is what remains after everyday costs and investment in buildings, machines and equipment.
How to calculate FCF
Cash from operations is the cash the business brings in from its normal work. Capital spending is money spent on long-lasting things like factories and data centers.
Why investors like free cash flow
Profit follows accounting rules and can look better than reality. Cash is harder to fake. Companies use free cash flow to pay dividends, buy back shares, pay off debt or buy other companies.
Is negative free cash flow bad?
Not always. A young company building factories can burn cash on purpose to grow. It becomes a problem when a mature company burns cash year after year with no clear payoff.
See it in real companies
Open a company to see what it sells and how it makes money.