What is Free cash flow (FCF)? Definition, Formula & Benchmarks

What is free cash flow (fcf)?

Free cash flow is the cash a business generates from operations after subtracting the capital it spends to maintain and grow itself. It's the money actually left over, and available to fund growth, repay debt, or build reserves. Unlike profit, FCF cuts through accounting to show real cash in and out.

Formula

Free Cash Flow = Operating Cash Flow − Capital Expenditures

Operating Cash FlowCash generated by core business operations in the period
Capital ExpendituresCash spent on equipment, property, or other long-term assets

Worked example

$500,000 of operating cash flow minus $80,000 spent on equipment leaves $420,000 in free cash flow.

Why it matters for fast-growing companies

Free cash flow is the truest read on whether a business funds itself or burns money, because it ignores accounting adjustments and shows the cash you can actually spend. Negative FCF isn't automatically bad for a growing company, but founders need to know how deep it runs and how long the cash lasts.

Frequently asked questions

How is free cash flow different from profit?+

Profit (net income) includes non-cash items like depreciation and follows accrual accounting, so it can look healthy while cash is tight. Free cash flow tracks actual cash moving in and out after capital spending. A company can be profitable on paper yet FCF-negative, or unprofitable yet cash-generating, so watch both.

Is negative free cash flow always a problem?+

Not necessarily. A fast-growing company may run negative FCF while investing heavily in the product, team, or infrastructure ahead of revenue. What matters is whether that spending builds durable value and whether you have the runway or funding to sustain it. Persistent negative FCF with no path to reverse it is the real warning.

Free cash flow (FCF)