Free cash flow definition: how 21 companies define it in their earnings releases

The common free cash flow definition is operating cash flow less capital expenditures, but there is no required formula: of the 76 companies behind CFO Voice's quotes, 42 used the term in their latest earnings release and 21 printed a definition, and 11 of those 21 added or subtracted something beyond capex. The SEC staff's Question 102.07, dated May 17, 2016, says the measure has no uniform definition and must be described wherever it is used.

That gap between a textbook formula and the ones companies use is the subject of this piece. The definitions below are each company's own words, quoted from the release it furnished to the SEC.

The textbook formula and where its inputs sit

Both inputs come from the statement of cash flows. Operating cash flow is the total of the operating activities section, labelled "net cash provided by operating activities" or a close variant. Capital expenditures sit in the investing section, as purchases of or additions to property, plant and equipment; the capex piece counts 21 different labels for that one line.

Subtract the second from the first and the result is the cash a business generated after paying for the assets it uses. Free cash flow itself is not a line in the GAAP statements. It is a non-GAAP measure under Regulation G because it starts from the GAAP operating cash flow figure and brings in an amount, capital spending, that the GAAP figure leaves out.

Twenty-one company definitions, grouped

To collect definitions without choosing them, the script read the latest release on the record for each of the 76 companies and took the first sentence that defines the term: "free cash flow" followed by "is defined as", "is calculated as", "is calculated by", "represents", "consists of" or "equals", or the form "defines free cash flow as". Of the 42 releases that use the term, 21 contain such a sentence. The other 21 use the term in a table or a quote without a sentence that defines it.

Each definition was then put in a group by its wording. A definition is "operating cash flow less capex, nothing else" if it names capital expenditures or property and equipment and nothing beyond. It is "with other items" when it also names software, intangible assets, leases, legal settlements, acquisition costs, proceeds from asset sales, non-recurring items or other assets, or says it may be adjusted.

Of 21 printed definitions, 11 add or subtract something beyond capex

Companies, of 21 that print a definition; n = 21

The numbers

Formula	Companies, of 21 that print a definition
Operating cash flow less capex, nothing else	10
Operating cash flow less capex, with other items	11

Ten companies print the plain formula. Rollins put it most simply:

Free cash flow is calculated by subtracting capital expenditures¹ from cash provided by operating activities².

1. 1The one deduction. Rollins's cash flow statement labels the line "Capital expenditures".
2. 2The GAAP starting point, the operating section's total in the cash flow statement.

Eleven companies go further. Their definitions, as printed in each latest release, fall into a few patterns.

The plain-formula group is Columbus McKinnon Corporation, CPI Card Group Inc., Gen Digital Inc., Medtronic plc, Owens Corning, Rollins, Inc., Synopsys, Uber Technologies, Inc, Western Digital and Zebra Technologies. Each table entry links back to a release through the data file published with this article, which holds every definition in full.

The variants: software, intangibles, leases and the rest

Software is the most common addition. Four of the eleven treat capitalized software or software assets as part of the spending deducted, alongside property and equipment. For a company that builds its own systems, the cost can sit in a separate investing line from the hardware, and a definition that deducts only property and equipment would leave it in.

Proceeds from asset sales run the other way. Cognizant and Hewlett Packard Enterprise add back cash received for property and equipment they sold, so the deduction is net capital spending.

Two definitions take out items from the operating side. ServiceNow adds back cash paid for legal settlements and business combination costs, and TaskUs excludes "certain non-recurring adjustments" from the figure it labels adjusted free cash flow. Lyft deducts its scooter fleet with its property and equipment.

None of these is wrong. Each is a company's description of its own measure, and Regulation G's requirement is that the description and the reconciliation travel with it.

When the release uses the term without a definition

Half of the releases that use the term, 21 of 42, contain no sentence the rule reads as a definition. That does not mean those companies never define it. A definition can sit in a footnote phrased another way ("free cash flow, which we calculate by"), in a reconciliation heading that names both inputs, in a second exhibit furnished with the same Form 8-K, or in the company's investor presentation. The rule is deliberately narrow, so that every definition it does find is unambiguous.

For a reader, the practical step is the same in every case: find the reconciliation. Regulation G requires one wherever a company discloses a non-GAAP measure, and for free cash flow it usually takes the form of a short table that starts from net cash provided by operating activities and subtracts each item the company deducts. The lines in that table are the definition, whatever the prose says. Where the table and the sentence differ, the table is the one with the numbers in it.

The count also changes with time. A company can change its definition between quarters, and the staff's Question 100.02 says a change in how a measure is calculated should be disclosed and explained. This piece reads the latest release on the record for each company, so a definition printed in an earlier quarter and dropped since would not be counted.

What the SEC staff says about free cash flow

The staff answered the question directly in 2016, in the interpretation that still governs the term:

companies should be aware that this measure does not have a uniform definition¹ and its title does not describe how it is calculated².

1. 1The staff's own finding, borne out by the eleven variants above.
2. 2The reason a definition and a reconciliation have to accompany the measure every time it is used.

The same answer says that deducting capital expenditures from operating cash flow does not break the prohibitions in Item 10(e)(1)(ii) of Regulation S-K. It warns against implying that the measure is the residual cash available for discretionary spending, since many companies have mandatory debt service and other commitments the measure does not deduct. And it says free cash flow is a liquidity measure that must not be presented on a per share basis.

Applying one formula to everyone

The definitions differ, so company figures cannot be compared as printed. One way to see the scale of the deduction is to apply a single formula to every company: operating cash flow less purchases of property, plant and equipment, both as tagged in the company's annual report in XBRL. The SEC's frames API returns those two tags for every filer and assigns each company's fiscal year to a calendar year; for the 14 companies in the two capex groups that tag both, the 2025 frame covers fiscal years ending between October 31, 2025 and April 24, 2026.

On one common formula, 14 companies kept between 53.7 and 98.6 percent of operating cash flow

Percent of operating cash flow, fiscal years ending October 31, 2025 to April 24, 2026; n = 14

The numbers

Share of operating cash flow left after capex	Percent of operating cash flow, fiscal years ending October 31, 2025 to April 24, 2026
Ball Corporation	62.4
Cognizant	90
CPI Card Group Inc.	69.5
Gen Digital Inc.	98.6
Klaviyo, Inc.	95.6
McKesson Corporation	92.9
Medtronic plc	74
Rollins, Inc.	95.9
ServiceNow, Inc.	84.1
Stanley Black & Decker	70.8
Synopsys	88.8
TaskUs, Inc.	53.7
Uber Technologies, Inc	96.7
Zebra Technologies	90.6

The median company kept 89.4 percent of its operating cash flow after capex on this formula. The range runs from 53.7 to 98.6 percent. The order is alphabetical and the dots share one color, because the point is the spread, not a position: a software company with few physical assets and a manufacturer with plants will land far apart on any capex-based measure, and neither result says the business is better run.

The chart is also a reminder of what the variants do. For a company whose definition also deducts capitalized software, the printed free cash flow can be lower than this common-formula figure. For one that adds back legal settlements, it can be higher.

How CFOs use the term in their own words

Of the 199 verified quotes, 14 name it, or 7 percent. Most use it as a result to report:

Through the first nine months of 2026, we generated $46 million of Free Cash Flow while continuing to invest in attractive growth opportunities and reduce debt.

Terra Grantham, Chief Financial Officer, CPI Card Group Inc., in the release furnished on November 4, 2026 (Exhibit 99.1; quote record).

CPI Card Group is in the plain-formula group, so the figure in that sentence is operating cash flow less capital expenditures and nothing else. Others put the term in a target. Palo Alto Networks, whose definition deducts "other assets" alongside property and equipment, gave one in two consecutive quarters:

Our profitable growth framework continues to scale effectively, reinforcing our confidence in achieving 40% adjusted free cash flow margin in FY28.

Dipak Golechha, chief financial officer of Palo Alto Networks, in the release furnished on September 1, 2026 (Exhibit 99.1; quote record).

By industry, the quotes come mostly from manufacturers and service companies, grouped by the SIC code each company has on file with the SEC.

14 CFO quotes on the record name free cash flow, half of them from manufacturers

Quotes; n = 14

The numbers

SIC division	Quotes
Finance, insurance and real estate	1
Manufacturing	7
Services	6

Free cash flow and the cash flow hub

The site's cash flow topic page lists every quote that mentions free cash flow, cash flow or cash generation, newest first, with the exhibit each came from. It is a wider net than the 14 counted here, because it also catches "cash flow" without "free". The adjusted measures that sit beside free cash flow in the same releases, and the add-backs behind them, are counted in GAAP vs non-GAAP: what 120 earnings releases reconcile, and the release as a whole is taken apart in what an earnings report contains.

A reading checklist

1. Find the definition. A release that uses the term should describe how it is calculated, usually in the non-GAAP section near the back.
2. Name the deduction. Is it capital expenditures alone, or also software, intangibles, leases or other assets?
3. Look for additions. Proceeds from asset sales, legal settlements or acquisition costs added back raise the figure.
4. Find the reconciliation. The release should bridge from GAAP operating cash flow to the free cash flow figure, line by line.
5. Check the cash flow statement. The inputs in the reconciliation should match the lines in the statement.
6. Read the word "adjusted". An "adjusted free cash flow" has a further adjustment, which the definition should name.
7. Do not divide by shares. The staff's guidance says free cash flow must not be presented per share, so a per-share figure built from it is the reader's own.

The definitions in full, the companies in each group and the frame values behind the chart are published with this article. How each quote reaches the site is set out in the methodology.