What is Cash Flow?

Cash flow is the net amount of cash that an entity receives and disburses during a period of time. A positive level of cash flow must be maintained for an entity to remain in business, while positive cash flows are also needed to generate value for investors.

What is Free Cash Flow?

Free cash flow is the net change in cash generated by the operations of a business during a reporting period, minus cash outlays for working capital, capital expenditures, and dividends during the same period.

Comparing Cash Flow and Free Cash Flow

There are two main differences between cash flow and free cash flow, which are as follows:

Representation of condition. Of the two concepts, free cash flow is the more refined measure, because it is a strong indicator of the ability of an entity to remain in business, including expenditures to support operations and pay for ongoing fixed asset enhancements.
Reporting. Cash flow is reported on a company’s statement of cash flows, whereas there is no such reporting of free cash flows - it must be derived from other information sources, and then presented in a separate report.