The correct answer is: A. free cash flow
Free cash flow is the cash that a company generates from its operations after accounting for capital expenditures and working capital requirements. It is a measure of a company’s financial health and its ability to generate cash to invest in its business or return to shareholders.
Noncash revenues and noncash charges are items that affect a company’s net income but do not affect its cash flow. For example, depreciation is a noncash expense that is used to account for the decline in the value of a company’s assets over time. When a company depreciates an asset, it reduces its net income but does not reduce its cash flow.
To calculate free cash flow, a company subtracts its capital expenditures and working capital requirements from its net income. Capital expenditures are the costs of acquiring or improving long-term assets, such as property, plant, and equipment. Working capital requirements are the funds that a company needs to maintain its day-to-day operations, such as inventory and accounts receivable.
Free cash flow is an important measure for investors because it provides insight into a company’s ability to generate cash. A company with a high level of free cash flow is more likely to be able to invest in its business, return capital to shareholders, or make acquisitions.
Here is a brief explanation of each option:
- A. Free cash flow is the cash that a company generates from its operations after accounting for capital expenditures and working capital requirements. It is a measure of a company’s financial health and its ability to generate cash to invest in its business or return to shareholders.
- B. Retained cash flow is the cash that a company retains after paying dividends to shareholders. It is a measure of a company’s profitability and its ability to generate cash to reinvest in its business.
- C. Net cash flow is the total cash flow generated by a company from its operating, investing, and financing activities. It is a measure of a company’s overall cash flow and its ability to meet its financial obligations.
- D. Financing cash flow is the cash flow generated by a company from its financing activities, such as issuing debt or equity. It is a measure of a company’s ability to raise capital to finance its operations.