What Free Cash Flow Reveals About a Business’s True Financial Health
Free cash flow is one of the most powerful yet often misunderstood financial metrics for evaluating a business. While profits can be influenced by accounting methods and one-time adjustments, free cash flow shows the actual cash a company generates after covering operating expenses and capital investments. This makes it a critical indicator of a business’s real financial strength, liquidity, and long-term sustainability. By analyzing free cash flow, investors, lenders, and business owners can better understand whether a company can fund growth, pay down debt, distribute dividends, or withstand economic downturns. Consistent positive free cash flow often signals efficient operations and strong management, whereas weak or negative free cash flow may highlight underlying issues even when reported profits appear healthy. This article explains what free cash flow truly reveals a business, why it matters more than profit alone, and how it helps stakeholders make smarter financial and strategic decisions with greater confidence.
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