The power of free cash flows: Types of businesses

Free-cash-flow generation, simply put, is the difference between the 'profits' of a company and 'capital investments' around working capital and capital expenditure. These are two distinct dimensions of business execution. Note, however, that this definition of free cash flows does not apply to lenders or insurers in the financial-services sector. The ability of a company to deliver on the first dimension, which is 'profits', is determined by attributes such as its pricing power (i.e., how the firm beats its competitors to gain market share without compromising on its profits) and operating efficiencies (i.e., how the firm achieves the same revenues as its competitors but with lower expenses). The

This article was originally published on September 28, 2021.