The one exception—and it’s a big one—is that it’s fine for a firm to be generating negative free cash flow if it’s investing that cash wisely in projects that are likely to pay off well in the future. For example, neither Starbucks nor Home Depot generated meaningful free cash flow until 2001—yet there’s no question that they had been creating economic value (and shareholder wealth) for many years before 2001. That’s because they were plowing every cent they earned right back into their businesses because their management teams believed that they still had many high-return investment
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