Free Cash Flow
The cash a business generates after funding the capital expenditure needed to maintain and grow its asset base.
Formula
Free Cash Flow = Operating Cash Flow - Capital Expenditure
Unit
₹ crore
In depth
Free cash flow is what is genuinely available for dividends, buybacks, debt repayment and acquisitions, which makes it the input to discounted cash flow valuation rather than accounting profit. The distinction between maintenance and growth capital expenditure matters and is not disclosed: a company in a heavy expansion phase can show negative free cash flow while being fundamentally sound. Sustained negative free cash flow with no expansion to show for it is the serious case. Comparing free cash flow with dividends paid shows immediately whether a payout is being funded by the business or by borrowing.
Worked example
Operating cash flow ₹220 crore less capital expenditure ₹140 crore gives free cash flow of ₹80 crore. A dividend of ₹110 crore therefore exceeds free cash flow by ₹30 crore, which must come from cash reserves or new debt.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Free Cash Flow” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.