Marketing Generics Application Note:
Free Cash Flow. What it is and what it means
Analysts and shareholders try to understand the financial health of a company, a bit like a doctor trying to understand the health of the patient he sees before him. Looking at the P&L reveals a lot, like a doctor taking the blood pressure. High blood pressure immediately signals to the doctor a potential issue, as does low profit or a loss on the P&L. Taking blood pressure of a patient is a good place to start but it doesn't tell the whole picture – the blood pressure could be ok but the patient has some other undiscovered and life threatening disease, so a doctor would have to do multiple tests before really determining the patient’s proper health, and so it is with analysing financial statement. The P&L is a great place to start, particularly to understand revenues and profit, but you also need other indicators. Hence the awakening interest in Free Cash Flow. This Application Note explains what it is and what it means.
Keywords: Free cash flow explanation, free cash flow definition, what is free cash flow? why it is different to profit?