Free Cash Flow

Free cash flow is the cash a company has left from operations after spending what it must to maintain and grow the business, such as plant and equipment. The math is simple: operating cash flow minus capital expenditure.

It matters because it is the money genuinely available to use. Net income mixes in accounting entries like depreciation and includes sales not yet collected, while free cash flow is the real cash remaining after paying for the assets that keep the business running. Only this money can fund dividends, debt repayment, buybacks, and acquisitions.

So checking free cash flow alongside a dividend reveals whether it is sustainable. Earnings may appear to cover the payout while free cash flow stays negative, which means the dividend is coming from borrowings or the cash pile. That does not last.

Negative free cash flow is not automatically bad, though. A company building new factories or scaling data centers deliberately invests more than it earns for a stretch. So read free cash flow as a multi-year trend rather than a single year, and if it is negative, check whether that investment is showing up in revenue later.