Free Cash Flow
Definition
The cash generated by a company's operations after accounting for capital expenditures required to maintain and grow the business. Free cash flow to firm is calculated as earnings before interest and tax, multiplied by one minus the applicable tax rate, plus depreciation and amortisation, minus capital expenditure, minus the increase in net working capital. The type of free cash flow used in any analysis must be specified, as free cash flow to firm and free cash flow to equity produce different figures.
Common Misapplication
The most common misapplication is using operating cash flow as a proxy for free cash flow without deducting capital expenditure. For companies with material capital expenditure, operating cash flow materially overstates free cash flow and produces a more favourable discounted cash flow valuation.
FFI Standard Reference
This term is defined and applied in Book 4, Section 4.2: Discounted Cash Flow Analysis.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Free Cash Flow. https://ffistandard.org/glossary/free-cash-flow/. 2026.