Free Cash Flow (FCF)
Free Cash Flow (FCF) is a measure of a company’s financial performance that shows how much cash is available for distribution to shareholders after all expenses and investments have been paid. It is calculated by subtracting capital expenditures from operating cash flow. FCF is an important metric for investors because it shows how much cash a company has available to pay dividends, buy back stock, or make acquisitions. It is also a key indicator of a company’s financial health.
History of Free Cash Flow
The concept of free cash flow was first introduced by financial analyst Benjamin Graham in the 1930s. Graham argued that a company’s true value was determined by its ability to generate cash flow, rather than its reported earnings. He believed that a company’s free cash flow was the best measure of its true value. Since then, free cash flow has become an important metric for investors and analysts to evaluate a company’s financial performance.
Comparison of Free Cash Flow to Other Financial Metrics
| Metric | Description |
|---|---|
| Operating Cash Flow | Cash generated from operations |
| Capital Expenditures | Cash spent on investments |
| Free Cash Flow | Cash available for distribution |
Summary
Free Cash Flow (FCF) is a measure of a company’s financial performance that shows how much cash is available for distribution to shareholders after all expenses and investments have been paid. It is an important metric for investors because it shows how much cash a company has available to pay dividends, buy back stock, or make acquisitions. For more information about Free Cash Flow, visit Investopedia, The Motley Fool, or Yahoo Finance.
See Also
- Operating Cash Flow
- Capital Expenditures
- Cash Flow Statement
- Cash Flow from Investing
- Cash Flow from Financing
- Cash Flow from Operations
- Net Cash Flow
- Discounted Cash Flow
- Cash Flow Yield
- Cash Flow Margin
