Free Cash Flow

Free Tutorial and Video

Learn about the significance of Free Cash Flow (FCF), how it represents the actual amount of cash a company has at its disposal, and its importance in maintaining operations, growing the business, and understanding the sustainability of a company's dividend payments.

Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. 

  • It represents the cash available for the company to repay creditors or pay dividends and interest to investors.
  • FCF reconciles net income by adjusting for non-cash expenses, changes in working capital, and capital expenditures (CAPEX).

Importance of FCF: Free Cash Flow (FCF) is an important financial metric because it represents the actual amount of cash at a company’s disposal. A company with consistently low or negative FCF might be forced into costly rounds of fundraising in an effort to remain solvent. Similarly, if a company has enough FCF to maintain its current operations, but not enough FCF to invest in growing its business, that company might eventually fall behind its competitors. For yield-oriented investors, FCF is also important for understanding the sustainability of a company’s dividend payments, as well as the likelihood of a company raising their dividends in the future.

Financial Modeling Bootcamp: Live & Hands-on, In NYC or Online, Learn From Experts, Free Retake, Small Class Sizes,  1-on-1 Bonus Training. Named a Top Bootcamp by Forbes, Fortune, & Time Out. Noble Desktop. Learn More.

Let’s calculate FCF in our example for DCF modeling.

Screenshot of a Microsoft Excel workbook titled 'Corporate Valuation and DCF modeling.' The spreadsheet outlines projected years of revenue, expenses, and EBITDA, along with a section for discounted cash flow calculations, including WACC, terminal growth rate, and enterprise value to derive an implied share price.

How to Learn Financial Modeling

Master financial modeling with hands-on training. Financial modeling is a technique for predicting the financial performance of a business or other type of institution over time using real-world data.

Yelp Facebook LinkedIn YouTube Twitter Instagram