What is free cash flow? Formula, interpretation and example
What is free cash flow?
Free cash flow (FCF) is the cash generated by operations after capital expenditure. Hachiquant calculates it as operating cash flow minus cash purchases of property, plant and equipment and intangible assets.
Formula
FCF = operating cash flow − cash purchases of PP&E and intangible assets (outflow magnitude)
- Filed purchase outflows are negative, so the equivalent signed calculation is operating cash flow + signed purchases.
- Use a combined purchase line once; do not add its components again.
- Some Japanese materials define FCF as operating cash flow + total investing cash flow. That includes asset sales, securities transactions and acquisitions, and is not Hachiquant’s ranking definition.
- There is no universal healthy yen range. Absolute amounts depend on company scale, sector and period length.
Ranges and interpretation
| Range | Interpretation |
|---|---|
| <¥0 | Operating cash did not cover included investment spending. Distinguish growth investment from weak operations. |
| ¥0 | Operating cash exactly covered included investment spending; this does not mean a zero cash balance. |
| >¥0 | A surplus after included investment, not automatically distributable profit or cash on hand. |
Worked example from a filing
Year ended March 31, 2026 (–)
J-GAAP · Consolidated · JPY
| Input | JPY million |
|---|---|
| Operating cash flow | 289,789 |
| Purchases of PP&E and intangible assets (combined, signed) | -27,169 |
289,789 + (−27,169) = 262,620 JPY million
For the year ended March 31, 2026, Nintendo generated 262,620 JPY million (¥262.62 billion) in free cash flow after the included purchases. This is not its period-end cash balance.
Source elements
- Operating cash flow
- jppfs_cor:NetCashProvidedByUsedInOperatingActivities
- CurrentYearDuration
- Purchases of PP&E and intangible assets (combined, signed)
- jppfs_cor:PurchaseOfPropertyPlantAndEquipmentAndIntangibleAssetsInvCF
- CurrentYearDuration
What to watch
- Cash flow is not accounting profit.
- Working-capital changes and deferred investment can temporarily lift FCF.
- Compare multiple like-for-like annual periods.
- Banks, insurers and brokers are not meaningful FCF comparisons with non-financial companies.
- Absent purchase inputs make FCF unavailable; they are not treated as zero spending.
- The linked ranking uses available non-negative JPY FCF from the latest annual figures, ordered by absolute amount, with at most 100 companies. It is not a safety score; negative-FCF firms are not listed there.