Free cash flow.

In plain English

Free cash flow is what remains from a company's operating cash after it pays for capital expenditures, the buildings, equipment, and infrastructure it buys to keep running and to grow. It matters because profit and cash are not the same thing. Accounting profit spreads the cost of a large purchase over many years, so a company can report a record profit while its bank balance shrinks in the same period. Free cash flow counts the cash that actually left this period, which is why it is the number that shows whether a business is funding itself or funding itself with borrowing.

01Why it matters

It separates a company genuinely generating money from one reporting profits while spending more than it takes in. When free cash flow turns negative at a highly profitable company, the spending is the story, not the profit.

02The math, step by step

A company reports $28 billion in quarterly profit, which sounds excellent. In the same quarter it spends $34 billion building data centers. Its free cash flow is negative: it spent more cash than it generated, so it has to borrow, sell stock, or draw down savings to cover the gap. The profit headline and the cash reality point in opposite directions, and both are true.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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