Free Cash Flow (FCF)

  • Posted byby Marko N.
  • Updated
  • 1 min
Free Cash Flow (FCF) is the cash a company has left over after covering the cost of running and growing its business.

Free Cash Flow (FCF) is the cash a company has left over after covering the cost of running and growing its business.

In other words, it’s what’s in the bank after paying the bills—operating expenses like payroll and inventory, plus capital expenditures like new factories or equipment upgrades.

FCF=Operating Cash Flow−Capital Expenditures

Why FCF Matters in Stock Analysis:

  • Cash Reality Check:
    Earnings can be influenced by accounting maneuvers, but FCF strips out these distortions, showing exactly how much cash the business truly generates. It’s earnings, unplugged.
  • Growth Indicator:
    Strong, consistent FCF signals a company can sustainably invest in growth without over-relying on external debt or new share issuance—keeping shareholders happy and dilution minimal.
  • Investor Reward Potential:
    Companies with ample FCF can reliably pay dividends, buy back stock, or reduce debt, enhancing shareholder returns and financial stability.
  • Early Warning Sign:
    Declining FCF could indicate underlying issues—like increasing operational costs or weakening competitive positions—warning investors before trouble hits the balance sheet.

Bottom Line:
Tracking FCF gives you a no-nonsense snapshot of financial health. Because in investing, real cash tells the real story.