How is Free Cash Flow defined?

• A. net operating cash flow - capital expenditure
• B. net income - taxes
• C. cash flow from financing - cash flow from investing
• D. operating cash flow + capital expenditure

Answer: (A)

Free cash flow is the cash a company has left after paying the costs needed to maintain or grow its asset base. In practical terms, it’s operating cash flow minus capital expenditures. This shows the cash generated by the core business that is available to distribute to investors, pay down debt, or reinvest.

The given definition matches this idea: subtract capital expenditures from cash generated by operations to reflect the cash truly available after maintaining the assets. Other options mix inearnings metrics or add CapEx instead of subtracting it, which doesn’t represent the cash that remains after sustaining the asset base.