FCF (Free Cash Flow)
The cash actually left over after subtracting CapEx from the cash earned in the core business — the funding for dividends, buybacks, and debt repayment.
In plain terms
Even after your paycheck (operating cash flow) comes in, what is truly free to spend is what remains after rent and essentials (CapEx). A company is the same. FCF is what is left from the cash the core business earned after spending on maintaining and expanding facilities and equipment.
With this money the company can pay dividends, buy back stock, and pay down debt. So FCF is called "the real spare cash a company can actually use."
What it tells you
Book profit (net income) is a number made under accounting rules, so it can differ from whether cash actually landed in the bank. FCF shows "is cash really left over," revealing the true fitness behind profit.
Steady FCF means the company can run on its own without borrowing outside money or issuing more stock. The sustainability of dividends and the room for buybacks ultimately come from FCF.
Formula
FCF = operating cash flow (OCF) − capital expenditure (CapEx)
What high or low means
Steadily positive FCF is read as good self-generated cash power. In a phase of heavy CapEx for growth it can turn temporarily negative — which may be investment rather than shrinkage.
If book profit is positive but FCF stays negative, it is a signal to question whether that profit is coming in as actual cash (or tied up in receivables and inventory).
FCF swings a lot with the timing of CapEx. In a year a big factory is built FCF dips, and in a year investment finishes it jumps. Look at the multi-year average and trend rather than one year's figure to see the real cash-generating power.
The combination of "fast revenue growth + weak FCF" is a caution signal. Revenue rises but cash may be tied up in receivables and inventory and not come in (Stocklore's context reading flags this "growth without cash" pattern). How much profit comes in as cash is checked with FCF conversion.
When computing FCF, stock given to employees instead of cash (stock-based compensation) is not subtracted as an expense. So a company that pays heavily in stock can have good-looking FCF while the share count rises (thinning your share), which can cut a share's value. When FCF is good, look at the change in share count too.
During the 2000 dot-com bubble, the online pet-supply company Pets.com drew huge popularity with flashy ads and went public. Revenue grew, but it actually lost money the more it sold, so cash kept draining out (free cash flow was negative the whole time).
In the end its cash ran dry just 9 months after the IPO, and it shut down. It is a symbolic case of what happens when you watch only revenue growth and popularity while missing "is it earning cash." The lesson: not profit or revenue, but FCF (the cash actually left over) decides a company's survival.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see FCF and other financial metrics alongside the sector average.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.