FCF is the workhorse metric of valuation. Discounted cash flow (DCF) models discount projected free cash flows to derive an intrinsic share price. Investors prize companies that grow FCF per share consistently.
Two flavours exist: FCF to the firm (FCFF, before financing) and FCF to equity (FCFE, after interest and net debt issuance). Strong FCF lets a company pay dividends, buy back shares, repay debt and acquire competitors without raising external capital.
Formula
Free Cash Flow = Operating Cash Flow − Capital Expenditures
Esempio
A manufacturer generates CHF 1.2m in operating cash flow and spends CHF 400k on capex — FCF is CHF 800k, of which the board pays CHF 300k as dividends and reinvests CHF 500k in growth.