free cash flow
Free cash flow is the money a company has left after covering its operating expenses and capital investments. It shows what’s truly available.
Why free cash flow shows your company’s real health
Free cash flow is what remains after a business covers its operating costs and capital investments. It’s the actual cash left over—the amount leadership can use without putting day-to-day operations at risk. Unlike reported profit, which includes non-cash elements, or EBITDA, which skips asset investments, this figure reflects what’s genuinely available.
It matters because it signals freedom. With strong reserves, a company can reinvest, pay down debt, or grow with intention. Without it, each decision comes with trade-offs. More importantly, it filters out illusions. You can hit revenue targets and still burn through cash. But when surplus cash is healthy and steady, it means the system beneath is working—calmly and efficiently.
I’ve worked with businesses that looked strong on paper and still ran short at quarter-end. Too often, leadership celebrates booked revenue and ignores cash timing. That’s why this number deserves a seat in every strategic discussion. It reflects what’s deployable—not theoretical.
A practical case in managing reinvestment
Imagine a company generating $10 million in operating inflow. It spends $4 million on infrastructure. That leaves $6 million in true excess. From here, the leadership team can choose: reinvest in product, reduce leverage, or return capital to shareholders.
I once advised a team that relied heavily on earnings as their main KPI. But after several near misses with liquidity, we shifted the conversation to available cash. That change brought clarity. Every project now had to justify not only its ROI, but its cash cost and timeline. The result? Better prioritization, fewer delays, and fewer surprises.
Positive cash surplus isn’t about being conservative. It’s about being ready. It creates optionality when opportunity—or crisis—arrives.
What free cash flow is not
It’s not what you have in the bank today. And it’s not the same as net income. One is financial theory, the other is operational truth. Another trap is ignoring investment timing. A single purchase can distort this figure in the short term, even if fundamentals remain strong.
This isn’t just finance territory. When product and commercial teams understand how their decisions shape liquidity, the whole company sharpens. I’ve seen marketing strategies and hiring plans improve dramatically once this number entered the conversation.
Use it to guide real decisions
Free cash flow is the most honest signal of how well your business converts execution into freedom. Don’t let it be an afterthought—make it the lens.
« Back to Glossary Index