Question

Which of the following statements is CORRECT?

1) Most rapidly growing companies have positive free cash flows because cash flows from existing operations generally exceed fixed asset purchases and changes to net operating working capital.
2) Changes in working capital have no effect on free cash flow.
3) Free cash flow (FCF) is defined as follows: FCF = EBIT(1 - T) + Depreciation - Capital expenditures required to sustain operations - Required changes in net operating working capital.
4) Free cash flow (FCF) is defined as follows: FCF = EBIT(1 - T) + Capital expenditures.
5) Managers should be less concerned with free cash flow than with accounting net income. Accounting net income is the 'bottom line' and represents how much the firm can distribute to all its investors–both creditors and stockholders.

Answer 1

Most rapidly growing companies have positive free cash flows because cash flows from existing operations generally exceed fixed asset purchases and changes to net operating working capital.

Step-by-step explanation:

The correct statement among the given options is:

1. Most rapidly growing companies have positive free cash flows because cash flows from existing operations generally exceed fixed asset purchases and changes to net operating working capital.

Free cash flow (FCF) is the amount of cash generated by a company's operations that is available for reinvestment in the business or distribution to shareholders. It is calculated by subtracting capital expenditures and changes in net operating working capital from the company's operating cash flow.