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LeoGlossary: Free Cash Flow (FCF)

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How to get a Hive Account


This is an important accounting metric used by business owners and investors when trying to deem the financial health of a company.

Free Cash Flow (FCF) is the amount of cash left after paying for operating expenses and capital expenditures (CAPEX). Business owners can determine how much discretionary cash can be spent. Investors use this metric to gauge the profit of a company, which ultimately plays into the valuation.

The focus here is cash. Non-cash expenses, such as depreciation and amortization, are excluded from the calculation.

To figure it out:

  • operating cash flow less capital expenditures

There are a number of types of cash flows in corporate finance:

  • Cash flows from operating activities: These are the regular activities of a business, including inventory purchases, making payroll, and collecting cash from customers.
  • Cash flows from investing activities: Cash activity related to purchasing and selling company assets.
  • Cash flows from financing activities: When a company raises money to operate your business by issuing stock or debt, the cash inflows are posted here. Dividends payments to stockholders are a cash outflow.

Free cash flow is concerned with operating activities and investing activities. Capital expenditures relates to the latter. Cash flow from financing activities is not included in this metric.

General:

Posted Using LeoFinance Beta