Free cash flow
What it measures¶
Free cash flow is the cash from running the business (operating cash flow) minus the money spent that year on equipment, buildings and other long-lived assets (capital expenditure). It is what is left to repay debt, pay the owners, or keep. This check asks two things: was free cash flow positive, and was it at least a tenth of the company's debt? The second part is the rating agencies' "free operating cash flow to debt" ratio.
Why it is on the page¶
Operating cash flow on its own can look healthy while all of it, and more, goes into keeping the equipment running. Free cash flow is what the business actually generates for its lenders and owners. Measured against debt, it shows how many years the company would need to repay its borrowing from its own cash.
Thresholds, their source and the population they were fitted on¶
| Result | When |
|---|---|
| ✓ passed | free cash flow is above 0 and free cash flow ÷ debt is 10% or more |
| ✓ passed, no debt | free cash flow is above 0 and the company has no debt |
| ✕ failed | free cash flow is 0 or below, or it covers less than 10% of the debt |
| ○ not evaluable | operating cash flow, capital expenditure or the total debt is not stored |
S&P's table places the weakest grade it still calls "aggressive" at about 5%; 10% is above that floor.
- Source: S&P Global Ratings' supplemental ratio table (free operating cash flow ÷ debt).
- Fitted on: no statistical sample — the agency's published grid.
- Evidence grade: practitioner convention.
- Basis: absolute.
A worked example¶
Honeywell International, fiscal year 2025 (statements stored on 25 October 2026): free cash flow was positive and equal to 18.9% of debt — passed. The Why sentence for the same year read: Free cash flow was 5.4 billion in fiscal 2025, 1.15 times net income of 4.7 billion: in line with net income.
Apple, the same year: free cash flow of 98,767 million US dollars against debt of 98,657 million — 100.1% — passed by a wide margin.
What “No verdict” means here¶
The check is not evaluable when operating cash flow, capital expenditure or total debt is not stored for the latest year; the missing input is named and the check leaves the area's count. A company with no debt is judged on the first part only.
What the verdict is and is not¶
A pass says the latest year's operations produced cash beyond what was spent on long-lived assets, at least a tenth of the debt. One year's capital spending can be unusually high or low, so a single year can mislead either way. It is not a forecast and not an instruction to trade the shares.