Concept
Free Cash Flow
Free Cash Flow (FCF) = Operating Cash Flow – Capital Expenditures. FCF represents the cash available to pay dividends, buy back stock, reduce debt, or invest in growth after maintaining existing operations.
PostedUpModule Details
FARLesson 5 of 5
Free Cash Flow & Analysis
Example
Cash Flow Patterns
Healthy company: Positive operating, negative investing (growing), negative financing (paying debt/dividends)
Startup: Negative operating, negative investing, positive financing (raising capital)
Declining: Negative operating, positive investing (selling assets), positive financing (borrowing)
Key Point
Operating vs Net Income
Operating cash flow can differ significantly from net income due to non-cash items and timing differences. Strong net income but weak operating cash flow may signal aggressive revenue recognition.
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