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Free Cash Flow

Free Cash Flow

  • Term

    Main definition

  • Free Cash Flow

    The amount of the company's cash flow available after payment of operating expenses, interest payments on debt, taxes, net principal repayments, preferred stock dividends and redemptions, reinvestment needs and changes in working capital. This is also called free cash flow to equity or cash flow available to the common equity.  Whatever amount remains after the payment of these items would be available theoretically to pay dividends to the holders of common equity, to redeem common equity, or for similar corporate purposes.  The earnings retained by the business also may add to the value of a common share. Therefore the rate of net positive cash flow (net of operating expenses, interest expenses, taxes and preferred dividends) per share is considered a useful measure of the value of the company.

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