Free cash flow
Cash a company generates from operations after capital spending, the money available to repay debt, pay dividends or buy back shares.
Free cash flow is commonly calculated as operating cash flow minus capital expenditure. It measures the cash left after a company pays for the spending needed to maintain and grow its business. Unlike net income, it is harder to shape through accounting choices, although working capital swings can distort a single period.
On our site, free cash flow is shown on a trailing twelve-month basis, with its margin against revenue. Watch for cases where net income grows but free cash flow does not.
Traders care because free cash flow funds dividends and buybacks, and a persistent gap from earnings can signal weak earnings quality.
Worked example (illustrative numbers, not real data): operating cash flow is 300 million dollars and capital expenditure is 120 million. Free cash flow is 180 million. Against net income of 200 million, free cash flow is 90 percent of net income, which suggests earnings are mostly backed by cash.