What is the equation for free cash flow?

The equation for free cash flow is defined as cash flow from operations minus capital expenditures (CapEx). This calculation provides insight into the cash that a company generates from its operational activities after accounting for the necessary investments in fixed assets, which are crucial for maintaining or expanding its asset base.

Free cash flow is a vital metric as it indicates how much cash is available for discretionary purposes, such as paying dividends, reducing debt, or reinvesting in the business. By subtracting CapEx from cash flow from operations, you get a clearer picture of the actual cash available to shareholders and stakeholders, which is essential for evaluating a company's financial health and operational efficiency.