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Free cash flow

Free cash flow Definition

 

Free cash flow measures a firm's cash flow remaining after all expenditures required to maintain or expand the business, including interest payments as well as investments in assets used to maintain or expand the business (including but not limited to those described as "property, plant and equipment" or "PP&E").

Free cash flow for a US company can be calculated from its public financial filings by referring to the statement of cash flows and subtracting all expenditures on "PP&E" and any other assets used to maintain or expand the business from the firm's cash flow produced by operating activities.

Free cash flow is a measure of the cash produced by the firm in a given period on behalf of equity holders. The true measure of the value of a firm's equity is considered to be the present value of all free cash flows.





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