Free cash flow
The cash left after running the business and keeping its assets in shape — the money genuinely available for debt, dividends or investment.
01 What it is
Why anyone looks at this number
The cash left after running the business and keeping its assets in shape — the money genuinely available for debt, dividends or investment.
It is what a lender, a buyer and a board all ultimately look at. Profit is an opinion; this is what is left when everyone has been paid.
02 The formula
How it is worked out
Free cash flow = operating_cash_flow − capital_expenditure grain : period × entity unit : currency source : Cash flow statement plus asset accounting
Decide once whether capex means cash paid or additions accrued, and whether disposals net off. Both are defensible; mixing them between periods is not.
03 Worked example
The same number, with real inputs
| Operating cash flow | €4.2m |
| Capex | €2.6m |
| Calculation | 4.2 − 2.6 |
| Result | €1.6m |
€1.6m to cover interest, debt repayment and dividends. If interest alone is €1.2m, there is very little room, and the working capital problem above suddenly matters a great deal.
04 What moves it
Four things that actually change this number
Operating cash flow
Everything above it, including the whole working capital story.
Maintenance capex
What you must spend to stand still, which is often understated.
Growth capex
Discretionary, and the first thing cut when cash tightens.
Timing
A large payment either side of a period end moves the number without changing anything.
05 Where the number lives
The system, the record and the fields
| System of record | Key record | Fields you need |
|---|---|---|
| Cash flow statement plus asset accounting | Reporting unit and Asset / Project | operating_cash_flow, capex_additions, disposals |
Decide once whether capex means cash paid or additions accrued, and whether disposals net off. Both are defensible; mixing them between periods is not.
06 How it goes wrong
Three ways this metric misleads people
Not separating maintenance from growth
A single capex line makes it impossible to see what is optional.
Fix: Tag each project as maintenance or growth at approval, not in hindsight.Ignoring leases
Moving a purchase to a lease flatters free cash flow while the obligation is unchanged.
Fix: Show lease payments alongside, or use a definition that includes them.Judging a single year
Capex is lumpy; one big project makes a good year look bad.
Fix: Use a three-year average for anything strategic.08 Questions
Frequently asked
What is the difference between free cash flow and operating cash flow?
Operating cash flow stops before investment. Free cash flow deducts the capital spending needed to keep the business running, which is why it is the better measure of what is genuinely available.
Should free cash flow be after interest?
Both conventions exist. Free cash flow to the firm is before financing costs; free cash flow to equity is after. State which one your report uses.
One definition, everywhere it is used
SCIKIQ stores this metric once and serves it to every dashboard, board pack and agent that asks.