TL;DR: Free cash flow (FCF) is the cash a company generates from operations after subtracting the capital it spends to maintain and grow its asset base. It shows how much cash the business produces and has available to repay debt, reinvest, or return to owners.
Free cash flow is operating cash flow minus capital expenditure – the cash spent on long-term assets such as property, equipment, or technology. It answers a practical question: after running the business and funding the investment needed to keep it going, how much cash is genuinely left over? Because it is based on cash rather than accounting profit, FCF is less easily overstated than a measure like EBITDA, which adds back non-cash charges and ignores capital spending altogether.
Positive and growing free cash flow signals a self-sustaining business. Negative free cash flow is common and often deliberate in high-growth companies investing ahead of profit, but it makes the company dependent on outside capital or its cash reserves to keep going.
Free cash flow speaks directly to a company's ability to service and ultimately repay debt from its own operations. A lender weighs current and projected FCF, alongside revenue trajectory and runway, when assessing a facility. For founders, understanding FCF clarifies how much room the business has to take on a repayment obligation and how a financing decision interacts with the path to cash generation.
How is free cash flow different from EBITDA? EBITDA adds back non-cash charges and ignores capital spending, so it can overstate cash generation. FCF subtracts capital expenditure and is based on actual cash, giving a more conservative picture.
Is negative free cash flow a problem? Not necessarily. Many growing companies run negative FCF by choice while investing in growth, provided they have the capital or runway to fund it and a credible path toward positive FCF.
Related terms: EBITDA · Cash Runway · Burn Rate · Rule of 40
