A firm that generates a great deal of free cash flow can do all sorts of things with the money—save it for future investment opportunities, use it for acquisitions, buy back shares, and so forth. Free cash flow gives financial flexibility because the firm isn’t relying on the capital markets to fund its expansion. Firms that have negative free cash flow have to take out loans or sell additional shares to keep things going, and that can become a risky proposition if the market becomes unsettled at a critical time for the company.
