Free Cash Flow (FCF)
Free cash flow is the cash a company generates after paying for capital expenditure.
FCF = operating cash flow minus capital expenditure. Unlike earnings, FCF is much harder to manipulate with accounting choices — cash is cash. Many investors consider FCF the most honest measure of a business's underlying health.
Companies with high FCF have choices: pay dividends, buy back shares, reduce debt, or reinvest in growth. FCF yield (FCF per share divided by share price) is a useful valuation metric that parallels the earnings yield.
Negative FCF is not automatically bad — fast-growing companies investing heavily in capacity or customer acquisition may burn cash while building enormous long-term value. Context matters.
Example
A company generating £500m operating cash flow and spending £200m on capex has FCF of £300m.
Further Reading
Jack Bogle's case for low-cost index funds, in under 300 pages.
Check Price →A structured logbook for tracking positions, theses and outcomes over time.
Check Price →Roger Lowenstein's definitive biography of the world's most famous investor.
Check Price →Related terms
Recommended Reading & Tools
As an Amazon Associate we earn from qualifying purchases. Links below are affiliate links.
Burton Malkiel's evidence-based guide to markets, indexing and long-term strategy.
Check Price →A desk whiteboard for tracking tickers, levels and ideas at a glance.
Check Price →Robert Kiyosaki's bestseller on assets, liabilities and financial literacy.
Check Price →