Free cash flow (FCF)

The single most important number in fundamental analysis. Free cash flow is the cash a business generates that is genuinely free - after paying for all operations and after reinvesting enough to maintain the asset base.

The formula

FCF = Operating Cash Flow (CFO) − Capital Expenditure (Capex)

Some analysts compute it more conservatively:

• Add back interest paid (so you see cash before financing)
• Subtract lease payments
• Subtract working-capital normalisations

The simple form above is enough for most reads. The principle is the same: cash from the business minus reinvestment to keep the business running.

Why FCF beats every other profitability metric

• A company can grow EBITDA forever and never make a single rupee of free cash - if every rupee earned has to be ploughed back into new factories or working capital. Many capital-intensive cyclicals (steel, infra) live like this for years.
• A company with mediocre P&L profits but strong FCF (high cash collection, modest capex needs) is the secret compounder.