Intermediate Accounting (16th Edition)

Published by Wiley
ISBN 10: 1118743202
ISBN 13: 978-1-11874-320-1

Chapter 5 - Balance Sheet and Statement of Cash Flows - Review and Practice - Questions - Page 238: 28


The purpose of free cash flow analysis is to determine the amount of discretionary cash flow a company has for the purchase of additional investment, retiring its debt, purchasing treasury stock or simply adding to its liquidity and financial flexibility.

Work Step by Step

Free cash flow is an important measure since it indicates how efficient a company is at generating cash. Additionally, investors use free cash flow to determine whether a company might have enough cash right after funding operations and capital expenditure to pay investors through dividends and share buy backs.
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