Free Cash Flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. It's the cash left over after a company pays for its operating expenses and capital expenditures (CapEx).
Digging deeper, Free Cash Flow is a measure of a company's financial performance and health. It shows how much cash a company has left from its operations—after paying for its operational expenses and CapEx—that can be used for further expansion, paying dividends, reducing debt, or other corporate activities.
FCF is a critical measure because it shows a company's ability to generate consistent cash flow, which is essential for long-term business sustainability. However, like any financial metric, it should not be used in isolation but in conjunction with other financial measures to assess a company's financial health.
For Tesla, Free Cash Flow is calculated by subtracting capital expenditures (like manufacturing plants and equipment) from its operating cash flow (which includes revenues from car sales, less operating expenses).
Amazon's Free Cash Flow is determined by subtracting capital expenditures (like costs for infrastructure and fulfillment centers) from its operating cash flow (which includes revenues from product and service sales, less operating expenses).
For Coca Cola, Free Cash Flow is calculated by subtracting capital expenditures (including production plants and equipment) from its operating cash flow (which includes revenues from beverage sales, less operating expenses).