It’s all about the money; why free cash flow is so important

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news.marketsIf you want to look at how a company’s performing, don’t just look at its earnings figures and read the analysts’ comments: make sure you look at the cash flow too. That’s what big investors – like Warren Buffett, chief executive of Berkshire Hathaway (NYSE:BRK.A) – do.

Free cash flow is defined as a company’s operating cash flow less its capital expenditure. Essentially, it reflects the cash that a corporation has generated after all its outgoing costs, including operating costs, taxes, dividends and debt payments.

 

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