Free cash flow
Free cash flow is a pure measure of the cash a company has left once it has met all its operating obligations.
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.
The free cash flow yield is worked out by dividing free cash flow per share by market capitalisation and total debt. The resulting percentage is a useful way of comparing companies that operate in the same market. The higher the firm's free cash-flow yield, the better.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
See Tim Bennett's video tutorial: Five ways companies can cook cash flow.
-
Private school fees soar and VAT threat looms – what does it mean for you?
Rising private school fees could see more than one in five parents pull their children out of their current school. Before you remortgage, move house or look to grandparents for help, here’s what you need to know.
By Katie Williams Published
-
Best and worst UK banks for online banking revealed
When it comes to keeping your money safe, not all banks are equal. We reveal the best and worst banks for online banking when it comes to protecting your money from scams
By Oojal Dhanjal Published