Free Cash Flow Defined & Calculated

By Adam Levy – Updated Oct 12, 2025 at 8:52 PM

Key Points

FCF provides clearer financial health insight than net income by focusing on cash transactions.
Use FCF to evaluate firm's ability to pay debts and fund dividends.
Consider FCF alongside growth and cash-to-debt ratios for thorough stock analysis.

Free cash flow (FCF) is the cash that remains after a company pays to support its operations and makes any capital expenditures (purchases of physical assets such as property and equipment). Free cash flow is related to, but not the same as, net income. Net income is commonly used to measure a company's profitability, while free cash flow provides better insight into both a company's business model and the organization's financial health.

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Free cash flow equals net cash from operating activities minus capital expenditures. — Image source: The Motley Fool.

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Cash Flow

Cash flow is how we measure the actual money flowing through a business that can sometimes be hidden behind complexities.

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Asset

An asset is a resource used to hold or create economic value.

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About the Author

Adam Levy is a contributing Motley Fool stock market analyst covering technology, consumer, and financial stocks and how policy, economic, and consumer trends shape personal finance, Social Security and retirement savings. Before The Motley Fool, Adam was a financial advisor at Edward Jones. He studied finance and electrical engineering at Carnegie Mellon University.

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