What does free cash flow represent in a business?

Free cash flow represents the cash available to a company after it has paid for its operating expenses and made necessary capital expenditures. This figure is critical because it highlights the company's ability to generate additional cash that can be used for various purposes, such as paying dividends, reducing debt, purchasing new assets, or investing in growth opportunities.

By focusing on cash that is free from obligations and reinvestments, free cash flow provides a clearer picture of the financial health and operational efficiency of a business. This metric is especially important for investors and stakeholders, as it indicates how much cash a company can generate after maintaining its asset base, which is crucial for long-term sustainability and profitability.

Understanding free cash flow is essential as it demonstrates a company's potential to return value to its shareholders and pursue strategic initiatives.