Free cash flow is cash flow from operations less cash used for

Question

Quizplus · Accepted Answer

Free cash flow is the cash that is available to the company after it has met its capital expenditure requirements. Capital expenditures refer to investments made in property, plant, and equipment (PP&E) that are needed to maintain or improve current production. Therefore, Option A is the correct choice as it subtracts investments in PP&E needed to maintain current production from cash flow from operations to arrive at free cash flow. Options B and D are incorrect as they subtract cash used for dividends and to redeem bonds payable which are financing activities and not capital expenditures. Option C is incorrect as it subtracts investments in PP&E needed to achieve desired future production, which is a capital expenditure and not already counted in cash flow from operations.

Free Cash Flow Is Cash Flow from Operations Less Cash