The free cash flow equation is fundamental in financial analysis, representing the cash available for a company’s operations and expansion. It is derived by subtracting capital expenditures (CapEx) from operating cash flow (OCF):
FCF=OCF−CapEx
This metric is vital for investors and analysts, offering insights into a company’s ability to generate cash after essential expenses and investments in fixed assets. It serves as a key indicator of financial health and potential for future growth.