What is Free Cash Flow
- Free cash flow (FCF) is the cash produced by a company through its operations,
minus the cost of expenditures. In other words, free cash flow is the cash left over
after a company pays for its operating expenses and capital expenditures or CAPEX.

Free cash flow shows how efficient a company is at generating cash and is an
important metric in determining whether a company has sufficient cash, after funding
operations and capital expenditures, to reward shareholders through dividends and
share buybacks.

Free cash flow can be an early indicator to value investors that earnings may
increase in the future, since increasing free cash flow typically precedes increased
earnings. If a company has rising FCF, it could be due to revenue and sales growth,
or cost reductions. In other words, rising free cash flows could the stock reward
investors in the future which is why many investors cherish FCF as a measure of
value. When a company's share price is low and free cash flow is on the rise, the
odds are good that earnings and the value of the shares will soon be heading up.