Free Cash Flow (FCF)

The cash a company generates after accounting for capital expenditures.

What Is Free Cash Flow?

Free Cash Flow (FCF) is the cash left over after a company pays for its operations and capital expenditures (like equipment, buildings, or software). It's the money available for dividends, share buybacks, debt repayment, acquisitions, or saving for a rainy day.

FCF = Operating Cash Flow - Capital Expenditures

Why Warren Buffett Loves FCF

FCF is considered more reliable than reported earnings because it's much harder to manipulate. Earnings can be inflated through accounting tricks, but cash is cash — it's either in the bank or it isn't. This is why many value investors consider FCF to be the truest measure of a company's financial health.

FCF Yield

The FCF yield (free cash flow divided by market cap) is a powerful valuation metric. A company with a 5% FCF yield is generating $5 in free cash for every $100 of market value — compared to, say, a 4% Treasury bond yield, this can indicate an attractive investment.