What is free cash flow?
Free cash flow is cash flow from operations minus capital expenditures: the cash left after running the business and investing in its assets. It is the cash available to repay debt, fund acquisitions or return money to owners. A services company with a large fleet or heavy equipment needs steady capital spending, so its free cash flow can sit well below its operating cash flow.
Why it matters to a revenue leader
Free cash flow is what a buy-and-build platform uses to fund add-on acquisitions and pay its lenders. Growth that needs new trucks, tools and technicians consumes free cash flow before it adds any. A revenue leader who can show which growth is capital-light, such as inspection and service work for existing customers, offers the sponsor a better kind of growth. In venture-backed companies, negative free cash flow is the burn.
How to calculate it
Free cash flow = cash flow from operations minus capital expenditures. A common mistake is using EBITDA as a stand-in, since EBITDA ignores both capital spending and working capital.
Example
Fictitious numbersA mechanical services platform generates $8 million of cash flow from operations and spends $3 million on service vans and equipment. Free cash flow is $5 million. A contract that needs six new vans at $60,000 each would reduce free cash flow by $360,000 in the year they are bought.
"Which of our growth plans need new capital spending, and which can we serve with the trucks and people we have?"
Sources
- Free Cash Flow (FCF) Formula (Corporate Finance Institute) checked 9 Oct 2026