SaaS Metrics Encyclopedia
Free Cash Flow (FCF) is a financial metric that represents the amount of cash generated by a company's operations that is available for distribution to investors, debt reduction, or reinvestment in the business. It is a key indicator of a company's financial health, reflecting its ability to generate cash after covering operating expenses and capital expenditures.
Measuring Free Cash Flow is crucial for assessing a company's financial flexibility and sustainability. Unlike accounting profits, which may be influenced by non-cash items, free cash flow provides a more accurate picture of a company's cash-generating ability. Positive free cash flow indicates that a company is generating more cash than it is using, allowing for potential dividend payments, debt reduction, strategic investments, or other value-creating activities.
Free Cash Flow is calculated by subtracting capital expenditures (CapEx) from operating cash flow. The formula is as follows:
Operating Cash Flow − Capital Expenditures
Improving Free Cash Flow involves strategies that enhance cash generation and optimize cash utilization.
By implementing these strategies, a company can enhance its Free Cash Flow, ensuring it has the financial resources necessary for sustained growth and resilience in dynamic business environments.
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