Free cash flow

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The net figure obtained by deducting from cash generated by operations - or by an investment - that cash which has been absorbed by operations or by the investment.

Free cash flow normally disregards all cash flows to do with financing.

A very important component of free cash flow is a deduction for net capital expenditure (capex).

The capital base of any ongoing business must be maintained, in order for the business to be sustainable. The deduction for capex within the free cash flow calculation identifies and quantifies this essential cash outflow.

See also