What is free cash flow?

Free cash flow is the cash remaining after a business pays operating expenses and capital expenditures. It represents money truly available for owner distributions, debt paydown, or reinvestment. The formula subtracts capital expenditures from operating cash flow. FCF is often more meaningful than net income because it reflects actual cash movement.

The number your P&L hides

Profit includes promises. Revenue recorded but not collected. Expenses accrued but not paid. Your income statement can show $200,000 profit while your bank account shrinks. Free cash flow strips away the accounting fiction and shows what you actually generated.

Distributions, debt, or reinvestment?

FCF funds three choices. Distribute to owners. Pay down debt. Reinvest in growth. Knowing your FCF clarifies what you can actually afford. Decisions based on profit often overreach. Decisions based on FCF stay grounded in cash reality.