Free cash flow (FCF)
Free cash flow (FCF) is the money left over after a company pays its operating expenses and the investment needed to keep the business running. It is the cash actually available to repay debt, pay dividends or buy back shares, and it is the figure discounted in a DCF. Unlike accounting profit, it is hard to dress up.
How it is calculated
| Cash flow from operations | €300M | |
|---|---|---|
| − capex (fixed assets) | €80M | |
| Free cash flow | €220M |
FCF = cash flow from operations − capex. With €300M generated by the business and €80M invested in fixed assets, free cash flow is €220M. It is the money genuinely left over once everything needed to keep operating has been paid, and it is what funds the dividend, buybacks, debt repayment or acquisitions. That is why it is compared with EV rather than with market cap: FCF is generated by the business before anyone decides whether it goes to shareholders or to creditors. Its per-share version, FCF ÷ shares, is the one set against the price to get the free cash flow yield.
The figures in the example are invented and rounded so the arithmetic can be redone by hand. They are not data from any real company.
What it is not
It is not net income, and the gap can be enormous in either direction. Profit carries depreciation that never leaves the bank, and FCF carries capex and working-capital swings that never pass through the income statement. It is not your money either: it belongs to the company, which may choose to use it on something that does not benefit you. And be careful with a high FCF in a single year: cutting capex or stretching supplier payments inflates it without the business having improved at all.
In the terminal
Income statement, balance sheet and cash flows by fiscal year or quarter, with the change in every line and its trend.
See the full glossary · What the Celsmar financial terminal is
Definition for informational purposes. It is not financial advice nor a recommendation to buy or sell.