Question

Which of the following companies has the HIGHEST free cash flow?

A) A company has $790,000 cash provided by operating activities, $137,000 in capital expenditures, and $63,000 in dividends paid.
B) A company has $520,000 cash provided by operating activities, $85,000 in capital expenditures, and $22,000 in dividends paid.
C) A company has $600,000 cash provided by operating activities, $96,000 in capital expenditures, and $42,000 in dividends paid.
D) A company has $650,000 cash provided by operating activities, $109,000 in capital expenditures, and $74,000 in dividends paid.

Answer 1

After calculating the free cash flow for each company by subtracting capital expenditures from cash provided by operating activities, it is found that company A has the highest free cash flow at $653,000.

Step-by-step explanation:

Free cash flow (FCF) is calculated by taking cash provided by operating activities and subtracting capital expenditures. This figure represents the amount of cash a company generates that is available for distribution among all the securities holders of an entity, including stockholders and creditors. It is useful for analyzing the financial health of a company. Let's calculate the FCF for each company:

• A) $790,000 - $137,000 = $653,000
• B) $520,000 - $85,000 = $435,000
• C) $600,000 - $96,000 = $504,000
• D) $650,000 - $109,000 = $541,000

Company A has the highest free cash flow among the options with $653,000.