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Free cash flow (FCF)
Also called: FCF, owner earnings
Operating cash flow minus capital expenditures: the cash a business generates, or consumes, after paying to maintain and grow its assets.
Explanation
Free cash flow starts with operating cash flow, the cash from running the business after working-capital swings, and subtracts capital expenditures (purchases of property and equipment). Positive free cash flow can fund buybacks, dividends, debt repayment or acquisitions; negative free cash flow has to be covered by cash on hand, borrowing or selling stock.
Watch what is added back. Stock-based compensation is a non-cash expense, so it inflates operating cash flow, but it is paid in new shares: a company can report positive free cash flow while diluting holders by several percent a year. Working-capital timing, such as collecting receivables early or paying suppliers late, can also flatter a single quarter.
Why it matters
Free cash flow decides whether a company funds itself or depends on capital markets. Persistent negative free cash flow is what pushes small caps into dilutive financing.
How Equity Dictionary measures it
The Financials tab charts operating against free cash flow by quarter and year. Free cash flow is operating cash flow minus capital expenditures; when a company reports no capex, it equals operating cash flow, and the tab says so.
Related terms
- Burn rate: How fast a company uses up cash, usually measured as operating cash outflow per quarter or per month.
- Cash runway: How many months a company can keep operating on the cash it has, at its current burn rate, before it must raise more.
- Trailing twelve months (TTM): The sum of the last four reported quarters, giving an annual figure that updates every quarter instead of once a year.
- Market cap vs. enterprise value: Market cap is the stock market value of a company’s shares; enterprise value adds debt and subtracts cash to value the business itself.
- Piotroski F-score: A 0–9 score of financial health built from nine pass/fail tests of profitability, balance-sheet strength and efficiency, comparing the last two fiscal years.
Plain-English summary for research; not legal or investment advice.