Question

What are the five key ways free cash flow is used? How does this relate to an organization s financial plan?

Answer 1

The five key ways the free cash flow can be used are:

1. Pay interest on debt.

2. Pay back principal on debt.

3. Pay dividends.

4. Buy back stock.

5. Buy non-operating assets.

A financial plan for an organization, can help managers achieve the financial goals of an organization.This plan helps managers take decisions that are in the best interest of the organization.

So, the free cash flows helps the organization achieve it's goals , that there should not be too much debt in the organization. So, with the free cash flows in hand, we can pay back the excess debt.

If the financial plan of the organisation , is to go for expansion activities then the free cash flow can be used to purchase non -operating assets(fixed assets).