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8. Free cash flow Aa Aa Accounting statements represent a company's earnings, but this is not the real cash that a company generates Earnings data
8. Free cash flow Aa Aa 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 positionn Which of the following statements best describes free cash flow? O The excess cash generated by revenues less all operating expenses O The cash flow available for distribution to all investors after the company has made all investments in fixed assets and working capital necessary to sustain a firm's ongoing operations Suppose you are the only owner of a chain of coffee shops near universities. Your current cafes are doing well, but you are interested in starting a 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 35%. 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 cafes; however, you do need $11,250 of additional cash . You also need to purchase $6,000 in additional supplies-such as cloth 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 Free cash flow can be used for various reasons, including distributing it to stockholders and debtholders. Which of the following is not a use of free cash flow? O Distributing dividends to stockholders O Acquiring operating assets
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