Free Cash Flow
FCF
What it is
Free cash flow is the money left after the company pays operating expenses and investments. It's what can fund buybacks, dividends, debt repayment, or acquisitions.
How to read it
Considered the most important health indicator by many investors — Buffett watches it closely. Positive and growing FCF is a quality signal. Chronic negative FCF signals either a company in massive build mode (acceptable), or one in trouble (alarming).
Common reference points
- Generates cash steadilyPositive and growing
- Generates some cashPositive but volatile
- Burns cashNegative
Orders of magnitude, not a rule: the same number does not mean the same thing from one sector to the next.
What it does not tell you
FCF can be negative for good reasons — a hyper-growth company investing heavily (Amazon in the 2000s). Always look at WHY FCF is what it is before judging.
Other measures — Financial health
Educational content. Polaris is not a registered investment adviser and makes no recommendation.