It indicates the ability of a firm to produce cash which factors in its capital expenditures. In a broader sense, there are 2 types of FCF, namely – So, in general, FCF is an effective measurement of a company’s financial health and performance. The said cash can also be utilised for lowering debt, expanding the scale of business, etc. In other words, it’s the cash available to repay creditors and reward investors with interest and dividend. It serves as a measure of the cash a firm generates or is left with once the amount of required working capital and capital expenditure is accounted for. What is Free Cash Flow?įree cash flow or FCF can be described as a firm’s cash flow or equity post the payment of all debt and related financial obligations. In this article, we have explained the concept of FCF in detail including the basics, types, formula, significance, pros and cons. They factor in a company’s free cash flow standing to gauge the viability and growth prospect of a business venture. In simple words, FCF is the money left after paying for things such as payroll, taxes and a company can use it as per its wish.Ī company’s ability to generate profit comes in handy for projecting a favourable image in front of investors and creditors. Free cash flow (FCF) is referred to the cash a company generates after considering the cash outflows to support its operations and maintain its capital assets.
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