Who this is for — Investors asking «how much real cash is left?» after capex. FCF feeds dividends, buybacks, deleveraging and DCF.
Free cash flow (FCF) is operating cash available after required fixed-capital and working-capital investment — typically: operating cash flow − capex (± other recurring items).
In plain terms — Money the firm can distribute or reinvest without breaking the business — more honest than accounting profit.
Common definitions
| Variant | Formula | Use |
|---|---|---|
| FCF to firm | OCF − capex | |
| FCF to equity | FCF firm − interest, Δdebt | Dividends, buybacks |
| FCF yield | FCF / market cap | Income comparison |
FCF can be negative in growth phase (high capex) — read with runway and margins.
Earnings quality
- Earnings ↑ but FCF ↓ → suspect quality (EPS vs cash)
- High EBITDA, low FCF → capex or WC consuming cash
- Normalize one-off capex and seasonality
Common mistake — Ignoring stock-based comp in tech — «good» earnings, flat or negative FCF per share.
Example — OCF €200M, capex €80M → FCF €120M. With 100M shares, FCF/share €1.20 — comparable to dividend policy.
Card
- Source: cash flow statement in financial statements.
- Metric: FCF yield, conversion rate.
- Valuation: primary DCF input.