What is the typical trend for free cash flow of high-growth companies over time?

For high-growth companies, the typical trend for free cash flow tends to be an initial period of negative or low free cash flow as they reinvest heavily in growth opportunities such as expansion, research and development, or marketing to capture market share. As the company matures and reaches a more stable phase, free cash flow usually begins to improve from these low or negative levels.

Over time, once the initial growth phase stabilizes and the company becomes more efficient in generating profits from its investments, free cash flow often begins to increase. However, this process can also involve fluctuation due to varying external factors such as changes in market demand or economic conditions. Therefore, while there may be a trend toward improvement after early declines, it is not uncommon to see a gradual decline during certain seasons or periods, particularly if the company faces increasing competition or economic headwinds.

The answer highlights the challenges high-growth companies face as they prioritize growth over immediate cash flow generation, defining the typical trajectory in the context of their overall business lifecycle.