metrics explained

Cash Flows from Operations vs Free Cash Flows: What's the Difference?

Most people are familiar with the term "cash flow." It's a measure of the money coming in and out of a business, and it's important to track cash flow in order to keep the business solvent. However, there are actually two different types of cash flow that are important to understand: cash flows from operations and free cash flows. Here's a look at the difference between these two types of cash flows.

Cash Flows from Operations

Cash flows from operations (CFFO) is a measure of the cash that a company generates from its normal business activities. This includes money from things like sales, as well as money that is spent on things like salaries, rent, and other expenses. CFFO is important because it shows how much cash a company has available to pay its debts and reinvest in its business.

Free Cash Flows

Free cash flows (FCF) is a measure of the cash that a company has available after it has paid for things like capital expenditures (such as new equipment or buildings). FCF is important because it shows how much cash a company has available to pay its debts, reinvest in its business, and return to shareholders.

The Difference Between CFFO and FCF

The main difference between CFFO and FCF is that CFFO includes money that is spent on things like salaries and rent, while FCF does not. This means that FCF is a more accurate measure of the cash that a company has available to pay its debts and reinvest in its business.

Why is CFFO Important?

CFFO is important because it shows how much cash a company has available to pay its debts and reinvest in its business. This is important because it can help a company to avoid defaulting on its debt payments, and it can also help a company to grow its business.

Why is FCF Important?

FCF is important because it shows how much cash a company has available to pay its debts, reinvest in its business, and return to shareholders. This is important because it can help a company to avoid defaulting on its debt payments, and it can also help a company to grow its business and return money to its shareholders.

Which is More Important?

Both CFFO and FCF are important measures of a company's cash flow, but FCF is generally considered to be more important. This is because FCF is a more accurate measure of the cash that a company has available to pay its debts and reinvest in its business.

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