Which of these statements related to free cash flow is correct?

Question

Quizplus · Accepted Answer

Free cash flow represents the cash generated by a company after deducting capital expenditures from its operating cash flow. This cash can be used to distribute to shareholders and debtors, acquire new fixed assets, pay off debt or increase cash reserves. Option A is incorrect as free cash flow does not have to be distributed in full to debtors and shareholders. Option B is incorrect as free cash flow need not be positive for a firm to acquire new fixed assets as the assets can be financed through debt or equity. Option D is incorrect as free cash flow is calculated by subtracting capital expenditures from operating cash flow, so it cannot exceed it.

Which of These Statements Related to Free Cash Flow Is