Free cash flow is:

Question

Free cash flow is:

Quizplus · Accepted Answer

Free cash flow is the cash that a firm generates after accounting for capital expenditures necessary to maintain its assets. It is cash that the firm can distribute to creditors and stockholders. Option A is incorrect because the money generated from the sale of new shares of stock is not a part of free cash flow. Option B is incorrect because operating cash flow is a measure of cash generated from the business operations, whereas free cash flow is a measure of cash that a firm can distribute to its investors after taking care of capital expenditures. Option C is incorrect because decreasing net working capital does not necessarily generate cash; it may simply reflect a shift in the composition of a company's current assets and liabilities. Option E is incorrect because net income is calculated on an accrual basis, which does not capture the actual cash inflows and outflows from a firm's operations.

Free Cash Flow Is