free cash flow

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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 ?
As corporations improve their working capital management, their free cash flow also increases, potentially leading to higher valuations by investors and subsequent increases in shareholder value.
Management views Free Cash Flow as an important financial measure of how well GWI is managing its assets.
This company, as a result, requires additional working capital investment and suffers a lower free cash flow and, consequently, a reduced market capitalization.
Overall, Fitch's ratings for Level 3 continue to reflect the company's high leverage, negative free cash flow and the execution risks surrounding the integration of the various acquisitions completed during 2006 and the first part of 2007.
Free Cash Flow is defined as EBITDA minus net interest expense, maintenance and expansion capital expenditures, change in working capital, taxes paid, and other cash items (net other expenses less proceeds from the disposal of obsolete and/or substantially depleted operating fixed assets that are no longer in operation).
Free cash flow before acquisitions rose by 7% to DKK 1,058 million from DKK 991 million.
A key to Echostar's continued EBITDA growth and free cash flow generation will be how the company balances subscriber growth, ARPU, subscriber churn and subscriber acquisition costs.
Fitch's LBO model projects free cash flow and a solid internal rate of return (IRR) for potential equity sponsors that could support Motorola as an LBO candidate.
These high levels of free cash flow allow us to build shareholder value in three ways: the advancement of our internal modem product development in support of product launch targeted for the fall of 2007, acquisitions of technology, and significant share repurchases.
Dividends reinvested in newly issued or treasury shares of common stock of the Company under a dividend reinvestment plan will not be treated as dividends for the purpose of the pre-dividend free cash flow test and will not reduce excess cash for the purposes of the senior credit facility.
4x Madison River's LTM free cash flow before and after anticipated synergies, respectively, and 8.
Although Norfolk Southern has been relatively aggressive in returning cash to shareholders through regular dividend increases and its share repurchase program, it has also used its substantial free cash flow to reduce debt.