Question

Accounting statements represent a company’s earnings, but this is not the real cash that a company generates. Earnings data can be manipulated and can be deceiving. Thus, corporate decision makers and security analysts focus on the free cash flow that a firm generates to analyze the company’s real cash position. Which of the following statements best describes free cash flow?

The amount of a firm’s available cash used to write off capital expenditures and depreciation

The amount of a firm’s available cash that can be used without harming operations or the ability to produce future cash flows

Answer 1

the amount of firm available cash that can be used without harming operation or the ability to produce future cash flows would be known as free cash flow because these free cash flows are generated after the payments for every expenses has been already made and they are reflecting the ability of the company in order to generate future cash flows.

Correct statement is option (B).The amount of a firm’s available cash that can be used without harming operations or the ability to produce future cash flows