What is Free Cash Flow?
The cash a company generates after funding operations and capital spending.
Formal Definition
Free cash flow (FCF) equals operating cash flow minus capital expenditures. It represents the cash available to reward investors through dividends, buybacks, and debt reduction, or to fund growth. Because it is harder to manipulate than reported earnings, FCF is a favored input for valuation and a key measure of financial health.
In Simple Terms
It is the real spare cash left over after a company pays its bills and reinvests in its business. Unlike accounting profit, it is money the company can actually hand back to owners.
Example
A company with $12 billion of operating cash flow and $4 billion of capital spending generates $8 billion in free cash flow.