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StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
The actual money moving in and out of a business.
Why It Matters
Cash is king. A company can show profits on paper while actually running out of cash - that's how Enron and WorldCom fooled investors before collapsing. Free Cash Flow (FCF) is what's left after the business pays for operations and investments. Companies use FCF for dividends, buybacks, and growth. No cash, no survival.
Key Points
- Free Cash Flow = Operating Cash Flow - Capital Expenditures (the cash available for shareholders)
- A company can be 'profitable' but still go bankrupt if it doesn't generate actual cash
- Warren Buffett loves businesses that generate consistent, growing free cash flow year after year
Related Terms
Common Questions
The actual money moving in and out of a business. Cash is king. A company can show profits on paper while actually running out of cash - that's how Enron and WorldCom fooled investors before collapsing.
Cash is king. A company can show profits on paper while actually running out of cash - that's how Enron and WorldCom fooled investors before collapsing. Free Cash Flow (FCF) is what's left after the business pays for operations and investments. Companies use FCF for dividends, buybacks, and growth. No cash, no survival.
Free Cash Flow = Operating Cash Flow - Capital Expenditures (the cash available for shareholders)
A company can be 'profitable' but still go bankrupt if it doesn't generate actual cash
Warren Buffett loves businesses that generate consistent, growing free cash flow year after year