Glossary
Free cash flow
Definition : Free cash flow
The free cash flow is an indicator that allows to evaluate the economic performance and the evolution of the financing needs of a company.
What is the purpose of Free Cash Flow?
Free cash flow is of great interest in the context of a company's financial management. It allows not only to evaluate the economic performance of a company, but also the future evolution of its financing needs.
It calculates like this: CAF-BFR-Investments net of disposals.
How to maintain and optimize your Free Cash Flow?
It is normal for it to be negative in the first few years of a company, with its transition to positive corresponding to the time required for a return on investment. If the FCF is negative, it means that the outgoing cash flow is greater than the incoming cash flow. In this case, it is necessary to play with the different delays (delivery, invoicing, collection) in order to optimize the sales cycle and thus to make the outgoing cash flow lower than the incoming cash flow.
If you want to know more about the use of Free Cash-Flow in thevaluation of a company, please contact one of our experts: contact a XVAL consultant.
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