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translateGLOSSARY · EQUITY

What is Free Cash Flow (FCF)?

Free cash flow is the cash a company generates after covering operating expenses and capital expenditure — the cash available to investors.

PrepClever Glossary · Equity

updateUpdated July 2026

Formula

FCF = Operating Cash Flow − Capital Expenditure

FCF shows how much real cash a business produces that could be returned to shareholders and lenders or reinvested. Because it is harder to manipulate than reported earnings, analysts often prefer it, and it is the cash flow discounted in a DCF valuation.

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Example

A company with ₹500 crore operating cash flow and ₹200 crore capex has ₹300 crore of free cash flow.

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Relevant NISM series

CFANISM Series XV

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Related Terms

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Glossary

Discounted Cash Flow (DCF)

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Glossary

Weighted Average Cost of Capital (WACC)

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FAQs about Free Cash Flow (FCF)

Why do analysts prefer free cash flow to net profit?add

Net profit includes non-cash items and accounting choices; free cash flow reflects actual cash generated, making it harder to manipulate and more useful for valuation.

Where to go from here

Free Cash Flow (FCF) is one term in a much larger syllabus. These are the fastest routes into the rest of it.

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