Final answer:
Free cash flow (FCF) is a measure of a company's ability to generate cash from its operations after accounting for necessary capital expenditures. FCF is important in finance because it represents the cash that is available to the company for potential investments, debt repayments, and returning value to shareholders.
Step-by-step explanation:
Free cash flow (FCF) is a measure of a company's ability to generate cash from its operations after accounting for necessary capital expenditures. It is calculated by subtracting capital expenditures from operating cash flow. FCF is considered the most important measure of cash flow because it represents the cash that is available to the company for potential investments, debt repayments, and returning value to shareholders.
FCF is important in finance because it provides insight into a company's financial health and its ability to generate cash without relying on external sources. It is used by investors, analysts, and lenders to evaluate the company's profitability and financial strength. FCF can indicate whether a company is able to fund its growth initiatives, pay its debts, and distribute dividends to shareholders.