Lesson 03 — Cash from Financing (CFF) & Free Cash Flow
Week 06 · Lesson 3 of 4 · Week 06 — Cash Flow Basics
Back to beginner course
CFF = cash flows between the company and its funders (lenders + shareholders). | Inflows | Outflows | ||| | New loans taken | Loan repayments | | Shares issu...
Cash from Financing (CFF)
CFF = cash flows between the company and its funders (lenders + shareholders).
| Inflows | Outflows |
|---|---|
| New loans taken | Loan repayments |
| Shares issued (IPO, QIP) | Dividends paid |
| Share buybacks |
Mature companies: typically negative CFF (repaying debt, paying dividends) Growing companies: sometimes positive CFF (raising debt/equity for expansion)
Free Cash Flow (FCF) — the king metric
Free Cash Flow = CFO − Capex
FCF = cash left after running the business AND investing for growth.
🗣️
"Business chalane aur invest karne ke baad bhi jo paisa bach jaye — woh hai free cash flow."
Why FCF matters
- FCF is what can be used to pay dividends, buy back shares, repay debt, or make acquisitions
- A company that consistently generates FCF is self-sustaining — it doesn't need external funding
- Warren Buffett's favourite metric!
FCF yield
FCF Yield = FCF per share / Share Price × 100
- FCF Yield > 5% is generally attractive
- FCF Yield < 2% means you're paying a premium
Putting it all together
CFOCash from core business
CFICash for investments / capex
▼
Free cash flow= CFO − Capex
▼
What the company can do with it
Pay dividends
Repay debt
Buy back shares
Accumulate cash
Key takeaway
Free Cash Flow is what an investor truly earns. Companies that generate consistent FCF create long-term shareholder wealth.