Which financial metric assesses a company's ability to generate cash after capital expenditures?

Free cash flow is the financial metric that specifically measures a company's ability to generate cash after accounting for capital expenditures. This metric is pivotal for assessing a firm's financial health because it indicates the amount of cash that is available for distribution to investors, including both equity and debt stakeholders, after the company has made necessary investments in its assets to maintain or expand its operational capacity.

To calculate free cash flow, one typically starts with operating cash flow and then subtracts capital expenditures, which represent the funds spent on acquiring or maintaining physical assets such as property, buildings, or equipment. This allows stakeholders to see the cash available for other uses, making free cash flow a critical indicator for investors analyzing the company's potential for growth, dividends, or debt repayment.

While net income reflects a company's profitability, it does not account for cash outflows related to capital investments, thus providing a limited view of cash generation capabilities. Operating cash flow measures cash generated from regular business operations but also does not consider the capital expenditures necessary for sustaining or growing the company's asset base. The capital assets ratio relates more to the relationship of assets to liabilities and does not provide insights into cash generation or expenditures.

Understanding free cash flow is essential for evaluating an organization's long-term sustainability, as it provides a clearer picture of