Morningstar calculates free cash flow as operating cash flow minus capital spending. It represents cash that isn’t required for operations or reinvestment.
Free Cash Flow
What is free cash flow?
Free cash flow can be a very helpful metric because determining a company’s fair value involves forecasting its future cash flows. Companies can have impressive earnings but poor free cash flow—if you see this, it’s good to dig in and find out why. Young, aggressive companies may have negative free cash flow, because they’re investing heavily in their futures. As companies mature, though, they should start generating free cash flow.
Note that free cash flow is a non-GAAP metric, so the free cash flow numbers companies report can be calculated in different ways.