free cash flow


Also found in: Acronyms, Wikipedia.

Free Cash Flow

A measure of a company's ability to generate the cash flow necessary to maintain operations. There is more than one way to calculate free cash flow, but perhaps the simplest is to subtract a company's capital expenditures from its cash flow from operations. Some analysts believe that free cash flow is more important than other measures of financial health because it measures how much cash a company has and can make. This differs from other measures, which are sometimes accused of using both legitimate and illegitimate forms of accounting to make a company look healthier than it really is.

free cash flow

The cash flow that remains after taking into account all cash flows including fixed-asset acquisitions, asset sales, and working-capital expenditures. The definition of free cash flow varies depending on the purpose of the analysis for which it is being used.

Free cash flow.

A business's free cash flow statement may differ significantly from its cash flow statement. The cash flow statement generally represents earnings before interest, taxes, depreciation, and amortization (EBITDA).

Cash flow and EBITDA focus specifically on the profitability of the company's actual business operations, independent of outside factors such as debt and taxes. Free cash flow, however, reports the net movement of cash in and out of the company.

To determine free cash flow, equity analysts add up all the company's incoming cash and then subtract cash that the company is obligated to pay out, which includes all expenses, debt service, preferred dividends, and capital expenditures. The result tells you how much cash was left over or how short of cash the company was at the end of the fiscal period.

References in periodicals archive ?
Many users unwittingly ignore what is packed into that line item when computing free cash flow.
Growth must be profitable to be of value, profitable enough to generate healthy free cash flows - that is, the money left over after subtracting expenses, taxes, and capital investment from revenues.
Net profit for the year is expected to increase by 5-7%, and free cash flow before acquisitions is expected to be in the region of DKK 800-900 million.
30, 2006 level and free cash flow as a percentage of total debt in excess of 8%.
Fitch estimates pro forma leverage and interest coverage metrics relative to EBITDA, cash flow from operations, and free cash flow excluding any previously paid dividends.
This press release contains forward-looking statements regarding our current beliefs and expectations as to: levels of free cash flow in 2007, payments related to current royalties and receipt of either scheduled license fee payments or new pre-payments, our ability to build shareholder value, a fall 2007 product launch, and our plans to reduce our average cost of capital.
CenturyTel estimates the transaction will be approximately 4% accretive to free cash flow per share, before synergies.
Going forward, Fitch expects the company to continue using a portion of its free cash flow to repurchase shares, although at a lower rate than seen in 2006.
Industry financial flexibility remains strong as cash balances are close to $200 billion, flat since year-end 2003, and annual free cash flow remains at approximately $60 billion.
Free cash flow could grow somewhat, however, as reduced business levels result in lower capital spending needs.
Operating profit margin expansion and increasing free cash flow primarily due to improving execution of previously underperforming mega-deal contracts, principally Navy Marines Corps Intranet (NMCI) and Ministry of Defense (MoD), despite significant ongoing expenses for tools and workforce realignment (Investments).
In addition, Fitch believes that the electronics manufacturing services (EMS) industry in general continues to suffer from excess capacity which will likely continue to negatively impact pricing for all competitors and represents further risk to Flextronics' margins and free cash flow outlook.