Follow the Money That Actually Moves

Profits are great—for headlines.

But if you want to know what’s real, follow the cash.

That’s the premise of this lesson:

“Profits are an opinion. Cash is a fact.”

While earnings can be massaged, free cash flow (FCF) tells the truth. It’s the cleanest view of a company’s financial engine—and it’s the reason companies like Apple, Amazon, and Berkshire Hathaway dominate.

What Is Free Cash Flow?

Free Cash Flow is the money left over after a company pays its bills and invests in the tools it needs to keep running (factories, software, new stores, etc.).

Think of it like this:

Revenue = Your salary Expenses = Rent, groceries, bills Free Cash Flow = What’s left in your savings account after all that

That leftover cash is what lets a company grow, acquire, pay dividends, or survive a storm.

Why Free Cash Flow Matters

Imagine you're comparing two companies:

• Company A shows $100M in earnings, but has negative cash flow

• Company B shows $50M in earnings and $60M in free cash

Who’s healthier?

Company B. Every time.

FCF is the oxygen of a business. Without it, a company might be profitable on paper—but suffocating in reality.

The Tricks Behind “Profit”

Earnings reports can mislead. Companies can:

• Delay expenses

• Accelerate revenue recognition

• Adjust inventory valuations

These moves don’t affect cash—only the accounting.

Example: A retailer may report higher profits just by tweaking how they value unsold inventory. Looks great… until it doesn’t.

FCF cuts through that noise.

Where FCF Really Shines

Here’s what companies with high FCF can do:

1. Reward Shareholders

Apple has returned hundreds of billions to shareholders through dividends and buybacks—all powered by its massive free cash flow machine.

2. Reinvest for Growth

Tesla uses FCF to build Gigafactories, fueling its expansion without constantly borrowing.

3. Make Strategic Acquisitions

Facebook bought Instagram and WhatsApp using cash flow—not fantasy projections.

4. Reduce Debt

Smart companies use FCF to pay down debt, lowering future interest costs and improving long-term stability.

Case Studies: The Cash Kings

• Berkshire Hathaway: Warren Buffett sits on over $150 billion in cash. Why? Because it gives him the power to buy when others panic.

• Apple: With over $100 billion in annual free cash flow, Apple can invest, return capital to shareholders, and still have a war chest for future moves.

How to Analyze FCF (Without a Degree in Accounting)

Visualize it like a funnel:

Revenue → Expenses → CapEx → Free Cash Flow

What’s left at the bottom of that funnel is what counts.

Here’s how to evaluate it:

• Look at the trend: Is FCF growing steadily over the past 5+ years?

• Compare margins: FCF ÷ Revenue = how efficient the business really is.

• Watch for context: Negative FCF isn’t always bad—Amazon had it for years while investing in infrastructure. But you need a reason for the shortfall.

If FCF is rising, consistent, and backed by a real business model—you’ve likely found a winner.