We all are great fans of free cash flow ( FCF). FCF is defined as the amount of cash which can be taken out of the business without hampering the business. It is the amount of net capital generated by the business which is available to be distributed to shareholders. It is calculated as Net cash from operating activities LESS Capex.
My query is as follows: -
Is FCFby above method relevant only for debt free companies.
In case of companies having debt shouldn't we also look at the amount of debt because the same carries repayment oligations and the same has to be repaid out of the FCF calculated in above manner.
Since there are only handful of companies which are debt free, what is the degree of emphasis we should put on FCF by above method.
Just to give an example: -
A company may have borrowed for expansion in the past. The expansion has just startedto bear fruits and in absence of any further capex the company is generating FCF. In such cases, FCF is first to be utilised to repay debt before it is available to shareholders. Hence, in such scenario I will prefer to look at the number of years the FCF will take to repay the debt first before it is available to shareholders.
Can someone please clarify this doubt?