Free cash flow is the cash a company generates from operations minus the money
it must reinvest in equipment and infrastructure (capital expenditures).
It is the cash actually available to pay dividends, buy back shares,
repay debt, or make acquisitions.
flow and spends $0.8B on capex. FCF = $2.2B. If its market cap is $44B,
the FCF yield is 5% — comparable to a bond coupon, but growing.
Why investors trust it
Reported earnings pass through many accounting choices — depreciation
schedules, revenue recognition, one-time items. Cash either arrived or it
didn’t. Persistent gaps between reported profit and FCF are a classic
red flag we check in every stock report.
Limitations
Heavy investment years depress FCF even at healthy companies, and asset-light
businesses look artificially strong. Always look at the trend over 3+ years,
not one quarter.
FCF divided by market cap. It lets you compare a stock’s cash generation
to bond yields and to other stocks regardless of size.
Related terms: P/E Ratio (Price-to-Earnings) · Insider Transactions · Institutional Holdings (13F) · Stop-Loss
This glossary entry is part of Veqtio’s investing reference. Explore our AI-driven stock reports and the transparent Investment Log of every call we’ve made. Not financial advice — see the disclaimer.