Free Cash Flow (FCF)
Cash remaining after a company pays for its operating expenses and capital expenditures — available for dividends, buybacks, or debt repayment.
What is Free Cash Flow?
Free cash flow (FCF) is the cash a company generates after accounting for all cash outflows required to maintain or expand its asset base. It is calculated as operating cash flow minus capital expenditures (CapEx). FCF represents the cash available to distribute to equity holders (dividends, buybacks) and debt holders (loan repayment). Companies with strong, growing FCF are generally considered financially healthy and have flexibility to invest, return capital, or reduce debt. FCF is often considered a superior metric to net income because it is harder to manipulate and reflects actual cash generation. Levered FCF deducts interest payments; unlevered FCF does not, making it useful for valuing the entire enterprise.
Example
In FY2024, Apple generated $119 billion in operating cash flow and spent $9.4 billion in capital expenditures. Free cash flow = $119B - $9.4B = $109.6 billion. Apple returned approximately $95 billion of this to shareholders through buybacks ($90B) and dividends ($15B). The $109.6B FCF demonstrates Apple's exceptional ability to generate distributable cash from operations.
Source: Apple 10-K FY2024