A:

Free cash flow is not the same as net cash flow. Free cash flow is the amount of cash that is available for stockholders once all expenses are extracted from the total revenue. These different expenses can include the operation expenses, taxes, all debts, capital expenditures and interest that is owed. Stockholders use this amount to see if the company has enough cash for future investments, to determine if profitability is satisfactory and to evaluate the company’s success.

The free cash flow amount is one of the most accurate ways for stockholders to gauge a company's financial condition. The net cash flow is the amount of profit the company has with the expenses that it pays currently excluding long-term bills or debts. A company that has a positive net cash flow is meeting operating expenses at the current time, but not long-term expenses, so it is not always an accurate measurement of the company’s progress or success.

If a company or business has a net cash flow that is barely positive, but it is not making progress on paying long-term debts, or is barely covering operation costs, the stockholders may no longer see the company as worth investing in. The company could easily go into the negative if it doesn't have a high net cash flow. If the company has a high free cash flow, it shows that it’s fully capable of supporting itself, and that there is plenty of potential for further growth. Determine your cash flow before investing more money into your company.

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