Stocktoria
Free Cash Flow Explained
Free cash flow (FCF) is the cash a company has left over after paying to run the business and investing in equipment and property.
Free cash flow = operating cash flow − capital expenditure
It’s the money truly available to reward owners (dividends, buybacks) or pay down debt.
Why it matters
Reported profit includes accounting estimates and non-cash items, so it can be massaged. Cash is much harder to fake. A company that reports steady profits but never produces free cash flow is a red flag — one of the checks inside the Piotroski F-score .
- Consistently positive and growing FCF = a healthy, self-funding business.
- Negative FCF isn’t always bad (fast-growing firms invest heavily) but means the company depends on outside money.
We also show FCF margin (free cash flow ÷ revenue) — how much of each sales dollar becomes spendable cash — and use FCF to judge whether a dividend is affordable.