Financial Statements
IntermediateWhat 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
Investor quotes to remember
“If you don't keep learning, others will surpass you.”
“The most dangerous words in investing are 'this time is different'.”
“I only bet when the odds are clearly in my favor.”
“Knowing what you don't know is more important than knowing what you do.”
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.