Profitability · updated October 21, 2026
What is free cash flow and how is it calculated
Free cash flow is the real cash left to the company in a year after it pays its costs and the investments it needs. This money pays dividends, buys back shares, reduces debt or funds acquisitions.
Free cash flow (FCF) formula
- Cash from operations
- Money actually received from the business, after paying suppliers, salaries and tax.
- Capital expenditure (capex)
- Money spent on equipment, buildings, machinery and software.
Worked example
A company brings in $7 billion from operations and invests $3 billion in new plants.
$4 billion is left that the company can return to shareholders or use however it wants.
How to read free cash flow (FCF)
On our pages you also find the yearly growth of free cash flow over 5 years and the conversion of EBITDA into free cash flow: above 50% means investment is not eating up everything the business produces.
When free cash flow (FCF) can fool you
Delayed investment: free cash flow rises when the company stops investing, but that bill comes later. Inventory and receivables: a company that collects faster from customers shows higher cash for a year.
Related terms
Questions about free cash flow (FCF)
Why does it matter more than profit?
Because profit is an accounting number and cash is real money. A company can report a profit and still run out of cash.
These explanations are for information only. They are not a recommendation to buy or sell.
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