The executive team at Midas Muffler and Brake decides to publish a statement of its available cash that subtracts from the cash, the planned investments in new shops and new technology. The statement can best be labeled a measure of
A) pro-forma earnings
B) free cash flow.
C) EBITDA (earnings before interest, taxes, depreciation, and amortization.
D) EVA (economic value added)

Question

Quizplus · Accepted Answer

The statement subtracts planned investments from available cash, indicating the cash that is available for other purposes, such as paying dividends or reducing debt. This is commonly known as free cash flow. Options A, C, and D are not relevant to the calculation of free cash flow.

The Executive Team at Midas Muffler and Brake Decides to Publish