What is free cash flow?
Free cash flow is the cash a business has left after paying for the capital investments it needs to keep running and growing. It is operating cash flow minus capital expenditures.
It is the truest measure of cash a business actually generates. Accounting profit can be shaped by non-cash items, but free cash flow is what is really available to repay debt, return to owners, or reinvest.
The free cash flow formula.
Free cash flow = operating cash flow minus capital expenditures. This tool calculates that directly, and a second mode gives FCF margin, which is free cash flow divided by revenue.
Both inputs come from the cash flow statement. Operating cash flow sits at the top of the financing section's lead-in, and capital expenditures appear under investing activities.
A worked example.
A business produces 100,000 in operating cash flow and spends 30,000 on capital expenditures. Free cash flow is 100,000 minus 30,000, which is 70,000.
What is a good free cash flow?
Positive and growing is the goal, since it means the business funds itself from its own operations. Fast-growing companies, software included, often run negative free cash flow while investing ahead of revenue.
Free cash flow starts from operating earnings, before capital spending takes its share. Reading it next to the earnings the cash starts from shows how much of profit survives to become cash.
How to read it.
Treat free cash flow as the bridge between profit and cash. A business can be profitable on paper and still burn cash if capital spending is heavy, so always check free cash flow before assuming profit means liquidity.
One input to it is how much cash goes into winning customers. When acquisition leans less on paid channels, less cash leaves the business each month, which is part of the case for growth that does not burn cash.