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Free cash flow, the figure professionals check first
What is left once investments are paid, and why it is harder to dress up than profit.
The definition
Free cash flow = operating cash flow − capital expenditure. It is the money the company is free to use to repay debt, pay dividends, buy back shares or make acquisitions.
How to read it
Compare it with revenue (free cash flow margin) and with net income. A healthy company turns most of its profit into cash over time: a free cash flow / net income ratio near or above 1 is a good sign.
Negative free cash flow in one year is fine if it funds an investment; several years in a row, you need to know how the gap is financed.