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6. Free cash flow Accounting statements represent a company's earnings, but this is not the real cash that a company generates. Earnings data can be
6. Free cash flow 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 that can be used without harming operations or the ability to produce future cash flows The amount of a firm's available cash used to write off capital expenditures and depreciation fine-dining restaurant. You decide to use the cash generated from your existing business to enter into a new business. Your accountant provides you with the following data on your current financial performance: Financial update as of June 15 - Your existing business generates $75,000 in EBIT. - The corporate tax rate applicable to your business is 25%. - The depreciation expense reported in the financial statements is $14,286. - You don't need to spend any money for new equipment in your existing cafs; however, you do need $11,250 of additional cash. - You also need to purchase $6,000 in additional supplies-such as tableclothes and napkins, and more formal tableware-on credit. - It is also estimated that your accruals, including taxes and wages payable, will increase by $3,750. Based on your evaluation you have in free cash flow. Can a company have negative free cash flow? Yes No
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