Glossary · Defined term
Free cash flow
Free cash flow is the cash a company generates after capital spending, available for dividends, buybacks, or debt repayment.
Last updated Oct 2, 2026
What it means
Free cash flow is the cash a company generates after paying for the capital spending needed to maintain and grow its business. It is calculated as operating cash flow minus capital expenditures, and it represents the money truly available to reward investors: paying dividends, buying back stock, repaying debt, or funding acquisitions.
Free cash flow is more revealing than net income for judging a company's financial flexibility. Net income includes non-cash charges like depreciation and can be flattered by accounting choices, while free cash flow shows what is left after the bills for real assets are paid. Companies with consistently strong free cash flow can fund themselves without borrowing or issuing new shares.
Valuation models lean heavily on it. Discounted cash flow analysis values a company by projecting its future free cash flows and discounting them to today, and many investors compare free cash flow to the stock price as a reality check on the multiple they are paying.
An example
For illustration, a company reports $500 million in operating cash flow and spends $200 million on equipment and facilities. Its free cash flow is $300 million, which is the pool available for dividends, buybacks, or debt reduction.
Related terms
Cash flow statement, Income statement, Dividend yield, Stock buyback