Free Cash Flow
Also known as: FCF, Free Cash Flow to Firm, Free Cash Flow to Equity
Free cash flow is the cash a business generates after funding the operating expenses and capital investments needed to maintain and grow it.
Free cash flow (FCF) is the cash left over after a company pays its operating costs and makes the capital investments required to keep running and growing. It is the cash that can actually be returned to investors, paid against debt, or reinvested.
Why it is the truest measure
Unlike EBITDA, free cash flow accounts for the real cost of capital expenditures and changes in working capital. That makes it harder to dress up and closer to economic reality, which is why a discounted cash flow is built on it.
Variations
Free cash flow to the firm is available to all investors before financing. Free cash flow to equity is what remains for shareholders after debt payments. Knowing which one is being quoted matters when comparing companies.