Free Cash Flow

Definition

Cash a business generates after spending needed to maintain or expand its long-term assets. A common calculation is operating cash flow minus capital expenditures; definitions can vary.

Free cash flow helps show how much cash is available after the company pays for long-lived assets such as equipment. A company can use that cash to reduce debt, build reserves, or return money to shareholders. A large investment project can temporarily reduce free cash flow.

Example

Company A generates $100 million in operating cash flow and spends $30 million on equipment. Its free cash flow is $70 million.