Question

I want some example of the uses of free cash flow . Also what makes operating cash flow and free cash flow change ? I just want to understand the concepts, it’s not for any assignment.

Answer 1

Free cash flow is the measure of cash that the business generates after accounting all the capital expenditures such as purchase of building etc. This cash can be used for payments of dividend, expansion, payments of debts etc.

Formula of free cash flow is:-

Free cash flow= operating cash flow-capital expenditure.

For calculation of free cash flow, companies/entities cash flow statement is used i.e., the base for calculation of free cash flow is cash flow statement.

As i said earlier, its uses include payment of dividends, payment of debts, expansion of business , buyback of shares etc.