Glossary / Fundamentals

Free cash flow

Also called: FCF

Free cash flow is the cash a business generated from operations after subtracting the capital spending needed to maintain and grow its asset base. It measures cash movement rather than accounting profit.

How it is measured

How is free cash flow measured?

Take cash flow from operations as reported on the cash-flow statement and subtract capital expenditure. Both figures come from the same filed statement. Definitions vary at the edges — some exclude acquisitions, some subtract lease payments — so figures from different sources are not always comparable.

Why it matters

Why does free cash flow matter to a swing trader?

Profit and cash diverge for legitimate reasons: revenue can be recognised before payment arrives, and large asset purchases hit cash immediately while reaching profit gradually as depreciation. Tracking both is how that divergence becomes visible. A company reporting profit while consistently consuming cash is describing a working-capital or capital-intensity situation that the income statement alone does not show.

Related

See this in the product

What the Fundamentals factor measures · Full methodology

Related terms

Profit margin
Profit margin is profit expressed as a share of revenue.
Return on equity
Return on equity is net income divided by shareholders' equity, expressed as a rate.
Piotroski F-Score
The Piotroski F-Score is a nine-point checklist of accounting tests, each scored one point if the company passes and zero if it does not.
Revenue growth
Revenue growth is the change in a company's reported sales between two periods, expressed as a rate.

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General information about market vocabulary, written to be descriptive rather than prescriptive. Not investment advice — see the risk disclosure.