Understanding Business Free Cash Flow for Investment Portfolios

FCF = Net Cash from Operations − Capital Expenditures. It's the cash your business generates after running operations and maintaining/growing assets. It's the money available for debt repayment, dividends, or investment. Positive, growing FCF is the hallmark of a financially healthy business.

From your cash flow statement: take net cash from operating activities (includes net income + depreciation + working capital changes). Subtract capital expenditures (purchases of property, plant, equipment). The result is your free cash flow. Track monthly and trend quarterly.

When FCF consistently exceeds your operational reserve target, you have investable capital. The discipline is to define "investable" clearly: FCF minus 3-month operational reserve equals deployable investment capital. Never invest operational reserves.

Conservative (low risk): 60% MMFs, 30% T-bills, 10% bond funds. Moderate: 40% MMFs, 30% fixed income, 20% equity unit trusts, 10% alternative. Aggressive: 20% MMFs, 20% fixed income, 40% equities, 20% strategic investments. Match portfolio risk to your business risk profile.

Always compare the ROI of reinvesting in the business against external investment returns. If your business generates 35% ROI on reinvestment, external investments at 12% are secondary. When business reinvestment ROI drops below financial market returns, shift allocation accordingly.