Free Cash Flow

Free cash flow means the cash a company has left after paying for operations and capital expenditures. In simple terms, free cash flow shows how much cash a business can generate after maintaining or growing its assets. Free cash flow is important because it can be used to pay down debt, buy back stock, pay dividends, invest in growth, or build cash reserves. Investors often view strong free cash flow as a sign of financial strength. For example, if a company generates $500 million in operating cash flow and spends $200 million on capital expenditures, its free cash flow is $300 million. Free cash flow is not the same as net income. Net income is an accounting profit, while free cash flow focuses on actual cash left over.