Cash flows available to pay the firm's stockholders and debt holders after the firm has made the necessary working capital investments,fixed asset investments,and developed the necessary new products to sustain the firm's ongoing operations is referred to as:

Question

Quizplus · Accepted Answer

Free cash flow is the cash that remains after all the expenses and investments necessary to sustain a company's ongoing operations are accounted for. It is important because it represents the amount of cash available to the firm's investors (both stockholders and debt holders). Operating cash flow only measures cash flows from day-to-day operations, whereas net operating working capital only focuses on changes in working capital. Therefore, neither option fully encompasses the concept of free cash flow.

Cash Flows Available to Pay the Firm's Stockholders and Debt