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Glossary · PSX term

Free cash flow.

Free cash flow is cash left after operating needs and capital spending. It helps investors judge whether profits are converting into cash that can reduce debt or fund dividends.

Definition

A common approach is operating cash flow minus capital expenditure. A company can report profit while free cash flow remains weak if working capital or investment needs absorb cash.

Worked example

If operating cash flow is Rs. 12 billion and capital expenditure is Rs. 5 billion, free cash flow is Rs. 7 billion.

Related on PSX Clarity

Term
Enterprise value
Term
Payout ratio
Term
Earnings per share

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