Free cash flow is an important metric for evaluating a company’s financial health. It shows how much cash the company has available to reinvest in growth or pay back creditors. Unlike net income, free cash flow includes spending on equipment and assets, as well as changes in working capital from the balance sheet.
Changes in free cash flow can also be a leading indicator of impending business risk. By wrapping your mind around this key indicator, you can make better decisions for the future of your business.