Cash flow and free cash flow
When profit is real, and what management can actually spend. · 9 min
Operating cash is the first filter
If the core business does not throw off cash, accounting earnings need an explanation. Working capital swings, one-time items, and aggressive revenue recognition all show up here over time.
Free cash flow is leftover cash
A simple version is operating cash flow minus capital expenditures. That leftover can repay debt, buy back shares, pay a dividend, or reinvest. If there is no leftover, management has fewer clean options.