Free cash flow

Operating cash flow less capital expenditures: the cash a business generates that is free for debt, dividends or growth.

DefinitionOperating cash flow less capital expenditures: the cash a business generates that is free for debt, dividends or growth.

Free cash flow is the cash the business produced in a period after paying for its operations, its working capital and the equipment and software it bought to keep running and grow. It is what is left to repay debt, pay owners or fund acquisitions. It is not defined by US GAAP, so a dashboard states how it is built.

How it is computed

Free cash flow = cash flow from operating activities − capital expenditures, both from the cash flow statement for the same period. Divided by revenue it gives free cash flow margin.

Example

Operating cash flow of $2,400,000 and capital expenditures of $900,000 give free cash flow of $1,500,000. On revenue of $20,000,000 that is a 7.5% free cash flow margin.

Where it goes wrong

A single month swings with the timing of payroll, tax and large invoices, so show it trailing or year to date. Delaying supplier payments lifts it for a period without improving the business. The full guide is the financial dashboard template.

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