FCF (Free Cash Flow)
The cash actually left after subtracting capital expenditures from cash earned in the core business — the source for dividends, buybacks, and debt repayment.
FCF = Operating Cash Flow (OCF) − Capital Expenditures (CapEx)
When FCF is consistently positive, the company is seen as generating cash well on its own.
In plain terms
Even after your paycheck comes in (operating cash flow), what's truly free to spend is what's left after rent and essential living costs (capital expenditures). Companies work the same way. FCF is what remains from the cash earned in the core business after subtracting what was spent maintaining and expanding facilities and equipment.
With this money, a company can pay dividends, buy back its own shares, and repay debt. That's why FCF is called "the real spare cash a company can actually use."
What it tells you
Book profit (net income) is a figure produced under accounting rules, so it can differ from whether cash actually landed in the bank account. FCF shows "whether cash is really left over," revealing the true strength behind the earnings.
Steady FCF means the company can keep running on its own without borrowing from outside or issuing more shares. The sustainability of dividends and the room for buybacks ultimately come from FCF too.
Formula
FCF = Operating Cash Flow (OCF) − Capital Expenditures (CapEx)
What high or low means
When FCF is consistently positive, the company is seen as generating cash well on its own. During periods of heavy capital spending for growth it can turn negative for a time, and that may be investment rather than contraction.
If book profit is positive but FCF stays negative, that's a signal to examine whether the profit is turning into actual cash (or is tied up in receivables and inventory).
FCF swings widely depending on the timing of capital expenditures (CapEx). In a year when a large plant is built, FCF drops sharply; in a year after the investment ends, it improves sharply. Rather than looking at one year's figure, look at the multi-year average and trend to see the real cash-generating power.
The combination of "fast revenue growth + weak FCF" is a caution signal. Revenue may be rising while cash stays tied up in receivables and inventory (Stocklore's context reading points out this "growth without cash" pattern). How much profit turns into cash can be checked with FCF conversion.
When calculating FCF, shares given to employees instead of cash (stock-based compensation) are not subtracted as an expense. So a company that pays heavily in stock may look good on FCF, yet the share count rises by that much (your slice is diluted) and the value per share can be reduced.
During the 2000 dot-com bubble, the online pet supply company Pets.com went public after gaining huge popularity with flashy ads. Revenue grew, but the business lost money on every item it sold, so cash kept draining out (free cash flow stayed negative throughout).
In the end, the cash ran out and the business shut down just nine months after listing. Revenue growth was fast and the brand was popular, but no cash was left over. What stopped the company was not its growth rate but its empty cash box.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see FCF alongside the sector benchmark.
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.