Free Cash Flow

The cash a business generates after accounting for capital expenditures — the pool from which a CEO allocates capital on behalf of shareholders. Warren Buffett has said that great CEOs must master Capital Allocation and that most are terrible at it. The Secret CFO’s companion thread frames “Maintainable Free Cashflow” (MFCF) as the first-principles starting point for any capital allocation decision.

Because a CEO acts as an agent on behalf of shareholders — with a Fiduciary Duty to treat capital only in ways that are in shareholders’ best interests — free cash flow is the central concept connecting operating performance to its downstream choices: reinvestment, Dividends, Share Buybacks, acquisitions, and debt paydown.

Where this appears

• Warren Buffett Said That Great… (tweet)