What's the Free Cash Flow of a Company?

Free Cash Flow: TL;DR

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).

Free Cash Flow = Operating Cash Flow - Capital Expenditures

In-Depth Understanding

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.

Real-world Examples

An Automobile Company - Tesla Inc.

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).

A Technology Company - Amazon Inc.

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).

A Beverage Company - Coca Cola Co.

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).

Check out financial statements of companies as charts on QuarterChart.com.