Final answer:
Free cash flow equals cash provided by operations less capital expenditures and cash dividends. It represents the cash available for further investments, debt repayment, or distribution to shareholders.
Step-by-step explanation:
Free cash flow is a measure of a company's ability to generate cash after accounting for expenses and investments. It represents the cash that is available for further investments, debt repayment, or distribution to shareholders. To calculate free cash flow, you subtract the capital expenditures (money spent on purchasing or improving assets) and cash dividends (money paid out to shareholders) from the cash provided by operations (money generated from the core business operations).
For example, if a company has $1,000 cash from operations, $500 in capital expenditures, and $200 in cash dividends, the free cash flow would be $300 ($1,000 - $500 - $200).