Free Cash Flow
Categories: Entrepreneur, Tax, Metrics, Investing
Free cash flow is the money coming in and out of a company that's not all tied up in costs related to fixed assets (like machinery and land). Basically, the cash coming in and out of a business only tells part of the story. The money that's not tied up in fixed costs is important because it shows how much of your earnings are tied up in costs. If you're earning tons but spending all of it on overhead costs, you're not coming out ahead, are you?
Example
You may be generating $100 million in earnings each month at your business, but you may be paying $10 million for leasing a factory, buying a new office, and paying for licenses for your products. The free cash flow is $90 million (your earnings minus your capital costs or expenditures).