Free cash flow is
A) the cash flows from operating activities reported on the statement of cash flows.
B) the discretionary cash that an entity has available for increasing capacity, acquiring new investments, paying dividends, and retiring debt.
C) the discretionary cash that an entity has available for increasing capacity, selling off investments, paying dividends, and incurring new debt.
D) the cash flows from operating activities reported on the statement of cash flows increased by the capital expenditures that are needed to sustain the current level of operations.

Question

Quizplus · Accepted Answer

Free cash flow is the amount of cash generated by a company’s operations that is available for discretionary purposes after accounting for capital expenditures needed to maintain its current operations. Therefore, it includes cash flows from operating activities but also takes into account investments in property, plant, and equipment needed to sustain operations. It is the cash that can be used to invest in new opportunities or return money to shareholders through dividends or share buybacks.

Free Cash Flow Is