free cash flow

free cash flow
A measure of the cash that a company is generating or consuming. Free cash flow is often defined as after-tax operating profit less net capital expenditure:
free cash flow = revenues - operating expenses + depreciation - taxes - capital expenditure costsHowever, there is no precise definition of free cash flow: another equation might include changes in working capital Making comparisons between companies on this basis is not very useful if they are using different definitions. Free cash flow is not determined in accordance with generally accepted accounting principles (GAAP) and should be considered in addition to, not as a substitute for, financial measures determined in accordance with GAAP. Free cash flow is important for managers as a positive cash flow can be used to pay dividends, acquire other companies, or invest in new opportunities. It is also an important measure of a company's ability to reduce debt. The value of a company can be calculated as the sum of the future discounted free cash flows (see discounted cash flow).

Big dictionary of business and management. 2014.

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