Free Cash Flow
Free cash flow is the surplus cash remaining after a firm has run its basic operations, paid
dividends, and spent the cash required to keep up with the
competition and to continue growing.
Free Cash Flow Important?
Because it's surplus cash, a firm could use its free cash flow to hike 1) dividends,
2) buyback shares, or 3) expand into new business areas. All of
those choices could increase shareholder value.
is Enough Free Cash Flow?
When it comes to free cash flow, more is always better.
Free Cash Flow is Negative?
Firms generating negative cash flows are said to be "cash burners."
It that condition persists, something has to give. They will either
have to cut 1) expenses, 2) cut dividends, or raise additional cash
either by 3) selling more shares or by 4) borrowing. None of those
choices are good for shareholders.
Free Cash Flow Yield?
Free Cash Flow Yield is the last 12-month's free cash flow per share expressed as a
percentage of recent share price. For example, your Free Cash Flow
Yield would be 10% if you paid $10 per share for a stock that
generated $100 per share of free cash flow over the past 12-months.