Q: In earnings reports, some companies talk about their "cash flow," while others emphasize their "free cash flow." Are these terms interchangeable or do they mean something different?

While these sound like they may be two different ways of saying the same thing, that's not the case. Cash flow and free cash flow actually have very different meanings.

Cash flow is a somewhat broad term that essentially means the difference between the cash a company takes in and the cash the company spends in a given period.

On a cash flow statement, which all public companies report, cash flow is broken up into three categories. There is operating cash flow, which essentially includes all of a company's net income plus its depreciation expense.

Next, there is investment cash flow, which includes any expenditures or income related to property, plant, and equipment. For example, if a company buys a new factory, the cost would be included in this category.

Finally, there is financing cash flow, which includes things like debt inflows and outflows, as well as dividends paid to shareholders and share buybacks. Combining these three subtypes of cash flow tells you a company's overall cash flow.

As an example, let's say that a company generated operating cash flow of $100 million, spent $20 million on investments, and used $50 million to pay down debt, pay dividends, and buy back stock. This combines to show cash flow of $30 million.

Free cash flow, on the other hand, is simply a measure of a company's operating cash flow minus its capital expenditures. In other words, if a company's operating activities produce net cash of $100 million and it spent $20 million on a new building and some equipment, its free cash flow would be $80 million.