Understanding Financial Statements Part 4: Free Cash Flow

If you missed the best recent articles:

• Jackson Hole 2025 and the FED's New Interest Rate Assessment Framework

• PayPal – Quietly Buying Back Shares

• Who Will Replace POWEL?

• Venezuela: From Tycoon to Economic Crisis

• 2024 Economics Nobel: Why Nations Fail?

In the previous 3 parts of the series Understanding Financial Statements, Viet Hustler has guided you through the Balance Sheet, Income Statement, and Statement of Cash Flows.

• Understanding Financial Statements Part 1: Balance Sheet (Balance Sheet)

• Understanding Financial Statements Part 2: Income Statement (Income Statement)

• Understanding Financial Statements Part 3: Statement of Cash Flow (Statement of Cash Flow)

However, there is one metric that many professional investors consider the “ultimate truth” of a business: Free Cash Flow - Free Cash Flow (FCF), because:

• Revenue may just be a “glamorous” facade.

• Earnings can be distorted by accounting.

• But Free Cash Flow (FCF) is hard to fake.

As Charlie Munger once said: “Earnings can be fudged. Cash flow is harder to fake.”

FCF is the cash left after the company has paid for all operating activities and maintenance investments - the “real” cash that can be used to pay debt, pay dividends, buy back shares, or keep as a “buffer” for tough times.

The problem is: despite its importance, FCF is often misunderstood or overlooked.

In today's blog post, Viet Hustler will dive deep into this concept with you.

• FCF Concept

• How to Calculate FCF

• Why is FCF More Important Than Earnings?

• Characteristics of FCF for Companies in Each Development Stage

  • Case study: Mag7 - Amazon & Netflix

• Notes When Analyzing FCF

• Metrics for Analyzing FCF