Seeing is believing!
Before you order, simply sign up for a free user account and in seconds you'll be experiencing the best in CFA exam preparation.
Basic Question 1 of 7
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.
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) |
Thanks again for your wonderful site ... it definitely made the difference.
Craig Baugh
Learning Outcome Statements
calculate and interpret free cash flow to the firm, free cash flow to equity, and performance and coverage cash flow ratios
CFA® 2025 Level I Curriculum, Volume 2, Module 5.