![]() ![]() ![]() It’s difficult to fake the cash flow coming in and leaving a company. That’s not really possible with this calculation. Other financial ratios can be adjusted or changed by management’s treatment of accounting principles. Investors like this measurement because it tells the truth about how a business is actually doing. Investors and creditors use this ratio to analyze a business in a number of different ways. This is an important concept because it shows how efficient the business is at generating cash and if it can pay its investors a return after it funds its operations and expansions. In other words, this is the excess money a business produces after it pays all of its operating expenses and CAPEX. Free Cash Flow, often abbreviate FCF, is an efficiency and liquidity ratio that calculates the how much more cash a company generates than it uses to run and expand the business by subtracting the capital expenditures from the operating cash flow.
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