On the basis of free cash flow,this essay first builds a financial early-warning system,which assesses solvency,operating capacity,earning quality and financial flexibility of a company.Then test the validity of the early-warning system by principal component analysis and multivariate logistic regression analysis using the data of China's A share listed companies in manufacturing industry from 2002 to 2006.The result suggests that with different portion of ST companies and non-ST companies in the sample,the validity of the systen is different,and the free cash flow based system can reach a satisfying early-warning effect before two years of the financial distress.