Free cash flow

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Free cash flow is a pure measure of the cash a company has left once it has met all its operating obligations. To get it, you subtract a firm's non-discretionary costs such as capital expenditure from its operating cash flow.

As a rule of thumb, a genuinely healthy company will tend to show positive free cash flow every year. It is free cash flow that allows a company to buy back shares, increase dividends, negotiate acquisitions, pay off debt and upgrade its equipment.

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