Profit can be flattered by accounting; cash flow is harder to dress up. A company that reports profits but persistently negative free cash flow is funding itself from debt or new shares.
Formula
FCF = cash flow from operations − capital expenditure
Glossary
Free cash flow is the cash generated by operations minus capital expenditure: cash available for dividends, debt repayment or growth.
Profit can be flattered by accounting; cash flow is harder to dress up. A company that reports profits but persistently negative free cash flow is funding itself from debt or new shares.
Formula
FCF = cash flow from operations − capital expenditure