What Is Free Cash Flow?

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Free cash flow is a measure of simply how much cash a company generated in a given period of time.

You're thinking, 'wait a minute I thought that was earnings, or net income.' Actually, no.

Don't worry -- you're going to be much smarter by the end of this than you are now.

Let's go step by step.

Earnings are revenues minus costs. Some of those costs are non-cash expenses, like the deppreciation of hard assets. Like when company's machine ages. That's expensed on the income statement and detracts from earnings.

Also, net income doesn't account for certain cash outflows that are not on the income statement.

But free cash flow does. And free cash flow doesn't account for non-cash expenses like deppreciation. Because we just want to know how much cash did this company bring in