What does free cash flow mean?
Free cash flow is the cash left after a company runs its business and pays for new assets. Profit is an accounting measure; this is the cash itself.
The company can use it to pay dividends, repay loans or keep it in the bank.
Where do the numbers come from?
The cash flow statement has three parts: operating, investing and financing.[S1]
Operating cash flow is the cash the main business brought in. Capital spending, or capex, sits in the investing part as payments for property, plant, equipment and intangibles.[S1]
How is it worked out?
Free cash flow is operating cash flow minus capex. Cityfort uses the same formula for every non-bank company.
Why can it differ from profit?
Profit counts sales when they are made, even if the customer has not paid. Cash counts only money that actually moved.
A growing company may also spend heavily on new plants for a few years. Its free cash flow can then be low or negative while profit rises.
Why is there none for banks?
For a bank, lending money is the business itself, not spending on assets. So the formula does not describe it, and bank pages use other measures.