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Cash flow from operations vs Free cash flow: What's the Difference?

When it comes to cash flow, there are two main types that are often confused: cash flow from operations (CFO) and free cash flow (FCF). Both are important in their own ways, but they are not the same. Here's a look at the key differences between CFO and FCF.

What is Cash Flow from Operations (CFO)?

Cash flow from operations (CFO) is a measure of a company's financial performance. It tells you how much cash a company generates from its core business activities. This includes things like sales, investments, and other operating activities. CFO is important because it shows how well a company is generating cash from its day-to-day operations. This is the cash that a company can use to pay for things like expansion, dividends, and debt repayment.

What is Free Cash Flow (FCF)?

Free cash flow (FCF) is a measure of a company's financial health. It tells you how much cash a company has available after it pays for things like operating expenses and capital expenditures. This is the cash that a company can use to pay for things like dividends, share repurchases, and debt repayment. FCF is important because it shows how well a company is generating cash after it pays for all of its expenses. This is the cash that a company can use to grow its business and improve its financial position.

Key Differences

Now that you know what CFO and FCF are, let's take a look at the key differences between the two:

  • CFO is a measure of a company's financial performance. FCF is a measure of a company's financial health. CFO tells you how much cash a company generates from its core business activities. This includes things like sales, investments, and other operating activities. FCF tells you how much cash a company has available after it pays for things like operating expenses and capital expenditures. This is the cash that a company can use to pay for things like dividends, share repurchases, and debt repayment.
  • CFO is important because it shows how well a company is generating cash from its day-to-day operations. FCF is important because it shows how well a company is generating cash after it pays for all of its expenses. CFO is important because it shows how well a company is generating cash from its core business activities. This is the cash that a company can use to pay for things like expansion, dividends, and debt repayment. FCF is important because it shows how well a company is generating cash after it pays for things like operating expenses and capital expenditures. This is the cash that a company can use to grow its business and improve its financial position.
  • CFO is calculated by adding back non-cash items to net income. FCF is calculated by subtracting capital expenditures from CFO. CFO is calculated by adding back non-cash items to net income. This includes things like depreciation and amortization. FCF is calculated by subtracting capital expenditures from CFO. This includes things like property, plant, and equipment purchases.

Conclusion

CFO and FCF are two important measures of a company's cash flow. They are not the same, but they are both important in their own ways. CFO tells you how much cash a company generates from its core business activities. This is the cash that a company can use to pay for things like expansion, dividends, and debt repayment. FCF tells you how much cash a company has available after it pays for things like operating expenses and capital expenditures. This is the cash that a company can use to pay for things like dividends, share repurchases, and debt repayment.

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