Ask a Fool: What Is Free Cash Flow?

Andrew Tonner
Andrew Tonner
Sep 22, 2012 at 12:00AM

Is today's edition of "Ask a Fool," analyst Andrew Tonner answers the question: What is free cash flow?

He defines free cash flow as the amount of cash that comes in or out of a business for a given period. He is quick to point out that this differs from net income, which is easily manipulated by accounting trickery and non-cash line items. 

You can calculate free cash flow today by flipping to a company's cash flow statement and subtracting capital expenditures from cash from operations. It's a quick and dirty back-of-the-envelope method that will provide a quick check on a company's free cash flow.

Taking a look at Apple's statement of cash flows shows a whopping $41.7 billion in free cash flow over the past 12 months, compared with the $40.1 billion it reported as net income.

Click the big green button to join the thousands of people celebrating Worldwide Invest Better Day on Sept. 25!