Free cash flow
Operating cash flow minus capital expenditures. The cash left over after running and maintaining the business — available for growth, debt paydown, or owners.
Free cash flow (FCF) is operating cash flow − capital expenditures. It's the cash genuinely available to the business after both running operations and maintaining/expanding the assets that produce revenue.
For a software company with minimal capex, FCF and OCF are nearly identical. For a manufacturer or telecom company that constantly reinvests in plant and equipment, FCF can be much lower than OCF — and that gap is real, not noise.
FCF is what most investors actually care about long-term. Net income is an accounting figure; OCF is closer to truth; FCF is closer still. A business that consistently generates FCF can pay dividends, buy back stock, make acquisitions, or pay down debt — all the value-creating activities that don't show up in topline revenue.
The "FCF yield" — FCF divided by market cap — is a common public-market valuation lens. A 5% FCF yield means the company is throwing off 5 cents of free cash per dollar of stock per year.
For private companies and SaaS founders, the cleanest "is this a real business" test is whether FCF is positive — or has a clear path to becoming positive within the planning horizon you can fund.
See also
- Operating cash flow — The cash a business generates from its core operations, before financing or investing activities. The truest measure of business health.
- Working capital — Current assets minus current liabilities. A measure of short-term liquidity — what a business has on hand to cover near-term obligations.
- Burn rate — How much cash a startup spends each month above what it earns. Net burn = expenses − revenue.
- Runway — How many months a company can keep operating at its current burn rate before running out of cash. Cash ÷ monthly net burn.
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