Free cash flow is commonly viewed as operating cash flow minus capital expenditure, although definitions vary.
Basic calculation
FCF is often approximated as CFO minus capex. State the exact definition used, especially when comparing data sources.
Why it matters
Cash generated after maintaining or expanding the asset base can support debt repayment, dividends, buybacks and reinvestment.
Growth trap
A high-growth company can have temporarily weak FCF because it is investing heavily. The key is whether the spending can earn attractive returns.
Quality check
Compare FCF with PAT over several years and investigate persistent divergence.
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