Free Cash Flow (FCF) is a non-GAAP measure of financial performance, similar to earnings. Specifically, it measures the cash flow available for distribution among all the security holders of a company, including equity holders, debt holders, preferred stock holders, convertibles holders, and so on. It can also be thought of as the cash left after the financing of projects required to maintain or expand the asset base. Many investors prefer to track free cash flow as opposed to GAAP earnings because it is much more difficult for companies to fake cash flow. Academic research has shown that the higher the quality of a firm's earnings (i.e., the ratio of cash flow from operations to GAAP net income), the better the returns shareholders realize.
Free cash flow is the basis of discounted cash flow (DCF) analysis, which can be used to determine the total value of a company's operations.
See also: Unlevered Free Cash Flow