What is free cash flow?

Free cash flow is operating cash flow minus capital expenditure. It represents cash that can be used for debt repayment, dividends, or reinvestment.

Quick Definition

Free Cash Flow (FCF) = Operating Cash Flow − Capital Expenditures. It is the actual cash a business generates after maintaining its assets. Warren Buffett considers FCF the true measure of a company's earning power.

Use this concept with tools

After-tax Return

Flat tax model for after-tax projection.

Payback Period

Time to recover initial outlay from cashflows.

Position Sizing + Kelly

Risk-based position size and Kelly fraction.

Related concepts

What does a cash flow statement tell me?

The cash flow statement tracks actual cash in three categories: operating (core business), investing (asset purchases), and financing (debt & equity). Strong operating cash flow is the gold standard of business health.

Can a company be profitable but still short on cash?

Yes — profit is accrual-based (recognized when earned, not collected). A company can show profits while running out of cash due to slow receivables, heavy inventory build-up, or large capital expenditures.

What is ROE?

ROE (Return on Equity) = Net Income ÷ Shareholders' Equity. It measures how efficiently management generates profit from capital. Above 15% is generally considered strong.