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.

See Tim Bennett's video tutorial: Five ways companies can cook cash flow.

Most Popular

June’s NS&I Premium Bond prize draw - are you this month’s millionaire?
Savings

June’s NS&I Premium Bond prize draw - are you this month’s millionaire?

Two fortunate NS&I Premium Bond winners are now millionaires. Find out here if you’re one of them.
1 Jun 2023
The best one-year fixed savings accounts - June 2023
Savings

The best one-year fixed savings accounts - June 2023

You can now earn 5% on 1 year fixed savings accounts - the best rate seen in 14 years. We have all the latest rates available now.
2 Jun 2023
The top healthcare funds to buy
Investments

The top healthcare funds to buy

Increasingly rapid progress in drugs and healthcare technology makes these trusts top tips, says Max King.
1 Jun 2023