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Definition of Free Cash Flow (FCF)

Definition: What is Free Cash Flow (FCF)?

Free cash flow (FCF) is the liquidity and efficiency ratio which is used to measure that, how much more cash company generate than it uses to run and expand the business.

It can be calculated by subtracting the capital expenditure from the operating cash flow.

Definition of Free Cash Flow (FCF)

FCF is the remaining money of the business after paying all the expenses of the company. This is an important measurement because it shows the efficiency of the business in producing cash.

Investors use this ratio mostly instead of other ratios for measuring the efficiency of the company in generating cash flow.

Management of the company can’t change the result of this calculation because it is difficult to fake the result of cash in and cash out of the company.

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