A third key number is free cash flow. It measures the amount of cash that a company threw off just by operating.
I calculate free cash flow by subtracting capital expenditures from cash flow from operations. Both of these numbers come from the cash flow statement.
Recall that a capital expenditure—also called capex—is the purchase of a noncurrent asset. There are two types: maintenance capex and growth capex. Maintenance capex is the purchase of equipment that will take over for equipment that is wearing out. It’s replacement. It’s an outlay that a company makes just to maintain its level of operations.
Growth capex ...