Earnings and Free Cash Flow--A Primer

Abstract

Finance students often encounter difficulty understanding the relationship between the finance concept of Free Cash Flow (FCF) and the accounting concepts of earnings and cash flow from operations.  In this pedagogical note we provide an alternative approach to exploring these relationships using simple algebraic expressions that does not rely on accounting jargon (i.e., debits, credits, and T-accounts).      

Keywords: Earnings, Free Cash Flow, Primer