What is one of the primary uses of free cash flow?

Free cash flow (FCF) serves a critical role in financial analysis, particularly in evaluating the cash that remains available for distribution after covering capital expenditures necessary to maintain or expand the asset base. The primary use of free cash flow is to assess the amount of cash that can be distributed to creditors (in the form of interest payments) and shareholders (in the form of dividends or stock buybacks).

This measure provides valuable insight into the company's financial health and operational efficiency, allowing stakeholders to gauge whether the company generates sufficient cash from its operations to sustain and grow without requiring additional capital investment or taking on more debt.

The focus on cash available for distribution highlights the importance of understanding liquidity, as it reflects the real funding capacity of a company after its operating needs and investments are met. This understanding is essential for investors and credit analysts when making decisions regarding investment or lending.