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FCF
(Free Cash Flow)
FCF (Free Cash Flow) represents the cash a company generates after maintaining or expanding its asset base (CAPEX). Calculated as Operating Cash Flow - Capital Expenditures, it shows funds available for dividends, debt repayment, or acquisitions.
Investors value FCF over accounting profits because "cash is king" - many bankrupt companies reported profits but negative FCF. FCF yield (FCF/Market Cap) helps identify undervalued stocks. Mature firms often have higher FCF than growth companies reinvesting profits. DCF valuations rely on projected FCF. From 2010-2020, S&P 500 companies averaged 5-7% FCF yields. Sustained positive FCF is a hallmark of quality businesses.
Investors value FCF over accounting profits because "cash is king" - many bankrupt companies reported profits but negative FCF. FCF yield (FCF/Market Cap) helps identify undervalued stocks. Mature firms often have higher FCF than growth companies reinvesting profits. DCF valuations rely on projected FCF. From 2010-2020, S&P 500 companies averaged 5-7% FCF yields. Sustained positive FCF is a hallmark of quality businesses.