What is Free Cash Flow?

[@MapAtlass]

Great content Phil, Netflix is probably the best example of net earnings being misleading, when they are delivering negative free cash flow year after year.

[@TheOpenCriticalmind]

Hi, may i ask where do you look for net earnings?

[@corruptodestructo]

@@TheOpenCriticalmind Income statement. The last line. Usually labeled as net income. It's also the same as the top line in the cash flow statement if you need to verify.

[@IMMERSIVEVOICE]

@@Sanctimonious007😂

[@action-money]

Thanks for this easy and understandable explanation. I looked several other videos, read other articles buy couldn't wrap my head around it. You nailed it in just 6 minutes! Priceless!

[@VladimirFinAdv]

The best explanation of FCF I found in several days of watching videos on the topic! Thanks, Phil!

[@rowanellis8259]

Phil Town! In the past 6 weeks I've listened to 80 episodes of you and Danielle and this is the first time I've seen your face. I had all kinds of positive feelings. Thanks for everything you do!

[@mmmsome]

Finally a finance dude on YT that actually makes sense

[@wannaknowbad]

This is an oldie but goodie. I'm still learning and have a long way to go. Thanks Phil for all that you do!

[@xm8909]

That’s the best explanation I’ve ever heard about free Cashflow. Even my professor couldn’t explain it that good.

[@doudoubingdu882]

Thank you very much for the explanation. I watched all the videos regarding the 3 financial statements and those are the most articulate and simplest ones I've ever watched. Thanks a lot!

[@PhilTownRule1Investing]

Thank you for watching, Jessica!

[@eddiewawa]

Thanks Phil, never understood what free cash flow was and its importance, but now I do in particular in light of tesla Q2 2019 results. Great vid sir

[@pwatom22]

Great summary of the headline key points. Now, a video that explains how we can find that information easily and ideally for stock picking would be good.

[@Wildboy789789]

Thank u... pacer has some cash flow etfs, gcow is what i use, global companies screened for cash flow then screened for dividends then weighed by yeild

[@josephwhite9628]

Thank you for pointing out the share buybacks are only worthwhile for investors, when the stock is cheaper than intrinsic value.

[@alessandrobianco7183]

Purchase of property and equipment. Is that not a reinvestment of cash in the business? Were in the cash flow statement can I see how much is reinvested in the company? Great video Phil, I love your contents :)

[@Legui1231]

You are the only person that could teach me clearly this concept Thank you!

[@bayleelebron2910]

This is really great. Great speaker. Very helpful. Had to subscribe.

[@PhilTownRule1Investing]

Thanks for being here, Baylee. Glad to hear you're enjoying the content! Stay tuned.

[@waqashamidi9733]

Great explanation.

[@KiyosakiSays]

“Cash flow tells the story of how a person handles money.” - Robert Kiyosaki

[@ChaceBonanno]

Is Purchase of Property and Equipment the same as Capital Expenditures?

[@PicknTime]

Yes it is...But I'm wondering what is the "Sticker Price"

[@Jordan-kk5xj]

FaraJi "intrinsic value", he mentions at 5:10

[@vitaminb4869]

There is no such thing as a "sticker price". It's all subjective and based on personal opinions. If there was, then the price would always reflect that.

[@sumaiyashaikh5220]

Thank you Mr.Phil you saved me I have an interview in coming days and I was worried how should I prepare for it. Your explanations are simple easy to understand.

[@teddyperera8531]

The best video in youtube explaining the concept. Thank you

[@GreenDistantStar]

Well yes, but if retained earnings are reinvested in the business, the application of those funds are likely to be found in the list previously mentioned. And making provisions for upkeep etc ensures the value of fixed assets is maximised.

[@aman888]

Best takeway from this is the last line. Make sure the cash flow is close to or as good as the net earnings.

[@kevinderosa4129]

Shouldn’t you add back in depreciation and amortization?

[@engrbutanding1980]

Is "Cash Flow from Operations" the same as "NET Cash Provided from Operating Activities"? Thanks

[@eyesonlyyt2]

Amazing, please keep doing this forever!! - Subscribed

[@APC-pm2on]

His books quite good too I'm still reading it

[@alikarimov1770]

Xvbcf

[@carlrygwelski586]

I wish you were my professor. Great energy man

[@farhatullah5603]

very well explained thank you for that but i have a question. are we suppose to subtract the amount being used in buying intangible assets to get free cash flow? they are necessary to keep the pace but we will still stay in business if we don't buy them. please explain

[@SwanteeSwe]

Does FCF apply to real estate companies or is there another key figure or number for those? Realty Income will probably keep paying and rising dividend. FCF is lower than the dividend in this case. W.P Carey same thing. The key question is, does FCF apply on all types of companies or are there exceptions?

[@hear105]

I dont like share buybacks, they're never guarenteed. if you want to return capital to investors you either raise the dividend yield in perpetuity or do a special dividend. Although its not tax efficient, when a stock buyback occurs, one has to let the management continue to deploy that free cash flow exlusively to that name. Whereas there is more certainty in cash itself.

[@pietervdb8070]

We are looking for the amount of cashflow which can be reinvested, however what if the cash has been reinvested in PPE? A practical but imperfect solution would be to rather take operating cashflow less depreciation, as depreciation represents the annual cost of utilising PPE?

[@thumbrule]

This was explained in such easy terms. Thank you so much.

[@vusiskosana7983]

BEAUTIFUL. Clear. Precise. Thank you!

[@AntonisApostolakis]

I could not find the line "Purchase of Property and Equipment" in the Cash Flow statement shown in Yahoo Finance for stocks FB, MSFT and F. I found instead "Capital Expenditure" which when subtracted from "Operating Cash Flow" then it equaled the Free Cash Flow shown on the Yahoo Finance's Cash Flow statement. What is the relationship of "Capital Expenditure" to "Purchase of Property and Equipment" as far as Cash Flow calculation is concerned?

[@toneg9015]

Is there another term for Property, Plant and Equipment? Some Cash flow statements do not have it. A lot of them have capital expenditures or something similar but PP&E is sometimes not there.

[@gregduda6839]

Ok. I agree that one of the three uses of free cash-flow is to expand the business. Therefore you should only be subtracting Maintenance Capex and not the Expansion Capex. This requires more digging to determine that portion of Capex which is for maintaining current operations and that portion of Capex which is for expanding the business. Also please subtract stock based compensation as well since this is really just a hidden cost of labor.

[@SarkisKlinik]

Hi, which metrics show us if they are reinvesting?

[@Firekid144]

Amazing explain of FCC. Thank you

[@TheOpenCriticalmind]

HI Phil, at @5:50, you mentioned that FCF should be = to net earnings. Can i find net earnings under the Income statement as Net income? (referencing Yahoo Finance) Thanks

[@kartikbhardwaj9240]

You explained it beautifully. Made it so simple. Thank you.

[@andymcmeekin2532]

One question - in your example when you deduct Money spent on PPE from operating cash flow. Is that money spend on existing PPE? Actually one more, is cash from operations the same as operating income?

[@minghaoed8]

The money deducted is actually the fixed capital investment... I think if you're talking about income from operations, then that is the same with operating income. But if you're talking about cash flow operations or operating cash flows, its the money generated from the business' core operations. Operating income on the other hand is like the EBIT...

[@9Trillionaire]

You sir are a legend. Subbed

[@markc5771]

Is there a certain benchmark for each individual sector that we're trying to find relative to our companies cash flow?

[@BeingOfLight-gq4fm]

Scenario: I get money from running my laundry mat, I pay taxes for building, Then I replace some of the machines, I pay taxes, Then I pay the employees and they of course pay taxes. Question: How are you suppose to have money left over? It looks like you get taxed 3 or more times, How do you avoid this?

[@EvanEvansE3]

How is FCF different than "profit" or Net Income?

[@qaisurrehman]

Great Explaination and great video, thank you for sharing your knowledge.

[@razadaza9651]

I always get confused with “reinvesting” how can and what does a business “re-invest” in? Some income generating asset that not relevant to the business? How many businesses can “reinvest” in R&d.. how is reinvesting different from buying ppe?

[@shrikanthpai6604]

I think the difference lies in investing in newer plants or purchasing smaller companies. These augment capacity and help revenue grow. As opposed to servicing and replacement of existing equipment to sustain current operations.

[@gmc9753]

What about acquisitions and divestitures? They are in the cash flow statement. Do they affect FCF?

[@rohita123456789]

Hello Phil, ca you post video explaining difference between FCF and FCFE? Thanks.

[@baktashjami]

Well explained! Would you explain also the intuition on free cash flow to equity and free cash flow to firm?

[@valerierodriguez9058]

Finally, I understood. Thank you.

[@ramachandranprakash1400]

simple and precise, great job phil thank you

[@mattsmith168]

phenomenal explanation

[@bob6168able]

Excellent.. and away from a lot of formulas,... Thanks

[@Infinitesap]

When calculating the Free Operating Cash Flow, should I include interest income and -expences the FOCF? If not then why? Because in my understanding the tax would then be different than on the P&L.

[@thenomadicprofessor6696]

what if there's cash flow from disposal of invesments? Do we need to add back to cash from operationsmto get the fcf?

[@anthonyramjattan4902]

Do you offer mentorship for newly M&A students?

[@phantomcreamer]

Is free cash flow cumulative or just what they made in that quarter? In other words, if they made say 5M in cash last quarter, is that added to the fcf of the next quarter? Or, is fcf just how much cash they got in a single quarter?

[@akshay6011]

Free cash flow should be utilized to reinvest and grow the company. But that includes investing in properties and machinery as need which would lead to lesser cash flow next year if everything stays the same & investments take time to add to rev & profits. Isn't this a cyclic problem or is new investment not accounted in cash flow statement for prop & machinery

[@jamespaz4333]

Excellent explanation Sr. Thank you!

[@Discovery_and_Change]

Is price-to-cash-flow referring to general cash flow or to free cash flow?

[@kranti137]

Phil price to free cash flow is same thing or free cash flow is different. If free cash flow is Negative what's that mean. If free cash flow is very very high what's that means Please explain as soon as possible i am waiting ur reply Thank you.

[@connergesbocker9902]

Phil is the goat

[@Miossoty1]

Hi I am from Jamaica. An example financial statement i have shows cashflow from operating activities with lots of others things below it to end at net cash provided by operations. Then in cash flow from investing activities it has purchase of PPE...are these the 2 numbers to use for calculating?

[@uztrtrwhu3678]

Hello, Mr Town, Could you please explain why cisco or Ibm are only worth 100 billion or 160billion (Cisco) when they get 12-15billion of fcf every year. I don't understand

[@PhilTownRule1Investing]

Thanks for the question! The two companies that you've identified are what wall street considers as "old tech". These are two companies that have been around for a long while (IBM is over 100 years old) and are focusing more on producing consistent cash flow as opposed to fast growth, which is what Wall Street uses to value businesses in the market. Wall Street loves growth. We can see this every day in the market with companies priced at extremely high ratios that sometimes aren't even based on a company's earnings. As such, IBM and Cisco have market caps that reflect wall street's expectations of growth. Our job is to find wonderful companies that have Meaning to us, with really strong Moats, competent Management, and buy at our on sale price (MOS, PBT, 10CAP). Great job getting started. Looking forward to seeing you down the road.

[@PhilTownRule1Investing]

@@uztrtrwhu3678 The reason that AAPL and GOOGL trade at a higher multiple is because wall street is expecting more growth and faster growth from those companies compared to IBM and CSCO. Wall Street loves to look at earnings and other metrics to price and trade companies. As Rulers, we love businesses that produce strong, consistent, predictable cash flow. We love those kinds of businesses because that strong, predictable cash flow comes back to us, the investor, in the form of reinvesting into the business, dividends, and buybacks. There is no one singular video that I would suggest that you watch for high returns. Learning to invest is a cumulative process. Come to our workshop, where we spend 3 days doing a deep dive on how to value a business. You can learn more about that event by visiting ruleoneinvesting.com/live-investing-summit-in-person/

[@uztrtrwhu3678]

@@PhilTownRule1Investing i don't understand, is there only a in Person event, iam living in Germany, and i don't understand how much it costs, is There a webinar on the internet?

[@nv6399]

Thanks Phil for a great content and best explaination.

[@l.j.2917]

I don't understand the 3rd one at 5:10, may someone please explain this to me? Why is it good if the company buys back the stock cheaper than the sticker price? Thank you in advance.

[@PicknTime]

See his website at: www.ruleoneinvesting.com/blog/how-to-invest/how-to-invest-sticker-price-and-margin-of-safety/# He give a good explanation of stick price and why company should buy back below sticker. Remember, the company no longer owns the shares that it will buy back in the future. Also, see Kevin Bracker's video at: kzbin.info/www/bejne/m6amoqiNjNOgjrs

[@naillz1818]

Excellent explanations

[@coffeeandbeyond7416]

Hii, in the balance sheet i see "Cash" but i also see "Cash & Equivalents" valuse.. in my counrty the add these two together.. i read your book but i don't know to witch of these 3 i should calculte the growth rate?

[@anshultiwari1982]

Hi. What is the difference between free cash flow and equity??

[@kewldewd8334]

Excellent analysis of FCF. Thank you sir.

[@AmeyAlshi02]

It was a great video! Very informative! Thank you Phil!

[@aliwalid325]

i have a question, can't the FCF be used to pay the company debtors too?

[@PhilTownRule1Investing]

Hey Ali! Thanks for the question. FCF is the cash that the company has left over after it has paid out its capital expenditures from the company's operating cash. From that remaining Free Cash Flow, the company can do many things including growing the business, paying down debt, buying back shares, or even paying a dividend. Hope this helps Ali. Looking forward to seeing you at one of our upcoming workshops!

[@QWERTYQWERTY-oo2wm]

Given the current economic landscape, how realistic is it to expect free cashflow equals net profit? I agree it is a great method but given the balance of probability I would dare say there is only a few companies out there that would fit that metric (Free cashflow = net profit). Thankyou for creating this video, very informative, T.

[@detailinggarage2327]

Phil what’s about loans payment?

[@hasansheikh3680]

perfect explanation

[@satyajiet]

Explained in the most amazing and simple way.

[@augustusg857]

On the cash flow statement you dont see the fcf being used to reinvest into the company.

[@susanparker3699]

If free cash flow over a 10 year period is somewhat inconsistent - a few years negative with most being positive - is that an issue if the lack of free cash flow is due to a rare event? I would think this is the case.

[@MrSupernova111]

+Susan Parker . Your question is very confusing. FCF should be calculated based on predictions. Unless you can predict a "rare event" like an earthquake for example then that is not considered.

[@roychastain4140]

FCF is not based on predictions, but on historical data. FCF is calculated by subtracting Capital Expenditures from Cash from Operating Activities. Discounted Cash Flow is based on assumptions, aka predictions.

[@maxjames00077]

You explained this so well!

[@brandonglidden]

Thanks for taking the time to explain this!

[@habibbialikafe339]

U should have explained why buying back shares at a lower price then why you believe it is worth is important and what else is subtracted to obtain FCF. It's not always just op income minus PPE

[@butirandebu3906]

can you explain more, why when company buys back the stock with the higher price than intrinsic value, we have to say NO

[@adamdintelman2067]

How is this different from Net Income?

[@Aditya-tw4mz]

My simple mind says FCF is what we normally call profit. Money left after subtracting costs. What am I missing here?

[@timscan7273]

Very interesting insights. Thanks for the upload.

[@hugomeza2910]

That’s it!? You just subtract PP&E from Cash Flow From Operations to get the free cash flow? Is there more to it or that’s just simply it?

[@olegkudzaev]

There's more

[@tejasmandulkar3596]

Very very good explanation, thank you so much

[@Jnoel608]

So these pivots are only based on previous days range instead of actual short term support and resistance.

[@huynguyenhodinh8709]

So good.

[@fase144]

Thank you, very well explained

[@christwarrior-usa]

Does EBITDA calculate free unencumbered cash flow?

[@minghaoed8]

Thank you for this, sir! God Bless!!!

[@kameshthukkaram]

super explanation, thank you

[@desaturated6049]

in short, Is free cash flow as good as savings? just that using those savings and reinvest back.

[@jnkvngz2965]

awesome explanation!

[@bcnicholas123]

It sounds a lot like profit. Can anyone tell me the different between free cash flow and profit?

[@Exceltrainingvideos]

Well explained.

[@Dan0mite95]

Great videos Phil! I really enjoy watching and learning more. And just one question; how do we know how much stock the company is repurchasing? Where can I find this information in the financial reports? Thanks

[@thurstonhowellthe3rd]

Share buy backs: like buying out your partner for the right price,. You then benefit from keeping future profits he no longer has claim to.

[@DarkaFire]

Excellent video, thanks Phil!