ATLASFree cash flow (FCF)
Investing glossary · Valuation and fundamentals
The cash left over after a company pays to run and maintain its business, available to owners and lenders.
Definition
Free cash flow is the cash a business generates from operations minus what it spends on capital expenditures such as factories, servers and equipment. It is the money that can be paid out as dividends, used for buybacks, used to repay debt, or kept for growth, without hurting the business.
Investors like free cash flow because accounting profit can be shaped by non-cash items and timing, while cash is harder to dress up. Comparing it with the market value gives the FCF yield, a measure of how much cash the business produces for each unit you pay for it. It is also the raw material of a DCF valuation.
Formula
FCF = operating cash flow − capital expenditures
Operating cash flow comes from the cash-flow statement; capital expenditures are the purchases of property, plant and equipment.
Worked example
Over the last twelve months Apple (AAPL) produced $108B of free cash flow on $467B of revenue, a free cash flow margin of 23.1%. Against a market value of $4.9T, its FCF yield is 2.2%.
A high margin means the business keeps a lot of each sale as cash; a high yield means you pay little for that cash. Neither says whether the cash will keep growing.
How ATLAS uses it
ATLAS reads free cash flow from company filings and uses it as the starting point of the cash-flow valuation behind its fair values.
Related in ATLAS: Financials →Browse all ATLAS tools →See it on a real stock
The example above uses these companies. Open their pages for the full numbers:
Frequently asked questions
Can a profitable company have negative free cash flow?
Yes. A company that is investing heavily in new capacity can report an accounting profit and still spend more cash than it brings in. It is worth checking whether the spending is building future earnings.
What is FCF yield?
It is free cash flow divided by the market value of the company. A 5% FCF yield means the business generates cash equal to 5% of its price each year.
Related terms
Put the idea to work on your own stocks
Open any company in ATLAS to see its fair value, its odds of rising and its risk numbers side by side.
Try ATLAS →Not investment advice. ATLAS estimates are produced by statistical models from public data; they can be wrong and past performance does not predict future results. Consider your own situation before investing. Disclaimer