Free cash flow
from class: Principles of Finance Definition Free cash flow (FCF) is the amount of cash generated by a company after accounting for capital expenditures necessary to maintain or expand its asset base. It is a key indicator of a company's financial health and its ability to generate additional revenue.
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Predict what's on your test 5 Must Know Facts For Your Next Test Free cash flow is calculated as operating cash flow minus capital expenditures. Positive free cash flow indicates that a company has sufficient funds to pay dividends, reduce debt, or reinvest in the business. Negative free cash flow may signal potential liquidity issues or significant investments in growth. FCF is an important metric for investors as it reflects the actual cash available for distribution or reinvestment. Free cash flow can be impacted by changes in working capital, such as accounts receivable and inventory levels. Review Questions How do you calculate free cash flow? What does positive free cash flow indicate about a company's financial health? Why is free cash flow considered an important metric for investors? "Free cash flow" also found in:
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