Operating cash flow minus capital expenditures — the actual cash a business generates after funding its own maintenance and growth requirements.
Deeper Explanation
Free cash flow is the lifeblood of any business valuation. Unlike reported earnings, it is cash-based and harder to manipulate. A business that earns ₹100 but spends ₹80 on capex to generate those earnings has only ₹20 of free cash flow. Sustainably high free cash flow margins signal a business that does not have to constantly reinvest just to stand still. Free cash flow can be split into maintenance (keeping the business running) and growth (expanding it). Investors prize businesses that generate substantial free cash flow without requiring heavy reinvestment — these are the compounding machines Buffett calls "wonderful businesses."
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