Free Cash Flow (FCF): Definition and Why It Matters
Free cash flow represents the cash a company generates after accounting for capital expenditures necessary to maintain or grow the business. It is a central input into DCF valuation and is used to assess the company's ability to return cash to shareholders.
Exact formula
Variations include leveraging EBIT/EBITDA adjustments or using net income plus non-cash charges and changes in working capital.
Notes
- FCF is a core input for DCF models.
- CapEx timing can significantly affect FCF in cyclical industries.