CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

True or False?

After the basic obligations of a business have been met, the portion of the annual net cash flows from operating activities that remains available for discretionary purposes is called free cash flow.
Correct Answer: True

Free cash flow is the portion of the annual net cash flows from operating activities that remains available for discretionary purposes after the basic obligations of the business have been met.

User Contributed Comments 7

User Comment
o123 ** FCF is derived from CFO only!
xcye Basic obligations of the business? Shouldn't that account for payment for the debt due? That's not included in the FCF calculation.
StanleyMo Free cash flow is operating cash flow minus money spent on capital expenditures and acquisitions (listed under investment activities).
StanleyMo xcye, the operating activities did consist of interested paid and income tax paid, please tae note.
gulfa99 is capital expenditure an obligation?
oneashok gulfa99, yes both fixed and working capital expenditure should be subtracted from CFO to arrive at the FCF
Davidrh oneashok: that is not correct. CFO has already considered changes in working capital (A/R, A/P, and Inventories are a part of CFO already)
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