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What Is Cash Flow?

By Jason Hall – Updated Aug 7, 2025 at 5:48 PM EST

Key Points

Free cash flow per share is a critical metric for assessing a company's long-term value.
Understanding varying cash flow types helps clarify a company's financial activities.
Investing decisions are enhanced by focusing on companies with growing per-share cash flow.

There are many ways to evaluate a business. This includes the usual numbers from the operating statement like revenue, earnings, and margins, along with more obscure (but often useful) metrics like contracted backlog, funds from operations, dollar-based retention, and many, many others.

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A piggy bank on a pile of cash. — Image source: Getty Images

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About the Author

Jason Hall is a contributing Motley Fool stock market analyst with more than a decade of experience writing about dividend stocks and long-term investing. He has been with the company since 2012 and previously spent over 10 years in technical sales in the printing and information services industry. Jason also founded and operated a small food manufacturing business.

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Jason Hall has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.

Although cash flow cuts through a lot of the complexity of accounting to better understand a company's financial results, there are different measures of cash flow, depending on where it comes from (or goes towards). You can find these cash flow metrics – or the data to calculate them – on the financial statement called the statement of cash flows. Here are some examples, and where you find them on the cash flow statement:

Cash flow from operations is the cash a company has left over (or has consumed in excess of) from sales after subtracting cash operating expenses. This is a useful measure of a company's ability to sustain its operations from its existing business without having to raise money via debt or stock sales.

Cash flow from investing measures the cash impact of acquisitions, capital spending, and investment, like buying Treasuries with excess cash on the balance sheet. Conversely, when companies raise cash by selling assets or cashing in things like Treasury bills, they are also recorded here.

Cash flow from financing is where a company records cash raised or spent on things like debt (secured and unsecured notes, revolving credit facilities, etc.) and secondary stock offerings or stock repurchases.

Free cash flow is the gold standard for measuring a company's financial performance. Although it doesn't have its own spot on the cash flow statement, it's easy to calculate. The formula is cash from operations minus capital expenditures (purchases of property and equipment). This generally tells us how much cash the company generates that it's "free" to allocate how management sees fit after all necessary spending is covered.

By not including cash from financing or investing, the focus is on the operations that should be the primary source of cash. This helps deduct any financial engineering that can make ends meet temporarily, and the one-off benefits of things like asset sales. The result is what a company can deliver, not how smart its accounting team is.

What Is Cash Flow?

Key Points

What Are the 11 Stock Market Sectors?

Average Stock Market Return

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About the Author

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