6.23What is free cash flow?
1What is it?
Free cash flow (FCF) is cash from operations minus money spent on new assets (capex). It is the cash truly "free" for dividends, buybacks, debt repayment or growth.
2Why does it exist?
Many investors consider FCF the best measure of real earning power.
3Calculation
FCF = Operating cash flow − Capital expenditure
- CFO ₹3,000 cr − capex ₹1,000 cr = ₹2,000 cr
FCF = ₹2,000 crore.
4Quick revision
- FCF = CFO − capex.
- Real spare cash.
- Consistently positive FCF is a quality sign.
5Knowledge check
Q1. CFO ₹500 cr, capex ₹600 cr. FCF?Show answer
−₹100 cr.
Q2. Is negative FCF always bad?Show answer
Not always; heavy investment for growth can cause it temporarily.
Q3. What can FCF be used for?Show answer
Dividends, buybacks, paying debt, acquisitions.
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