Final answer:
Free cash flow is (D) the cash available for a firm to distribute to creditors and stockholders after paying for its operating expenses and capital expenditures. It's a key indicator of financial health and provides insights into a firm's profitability and potential for growth.
Step-by-step explanation:
Free cash flow (FCF) is Cash that the firm is free to distribute to creditors and stockholders. It represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike net income, free cash flow is a measure of profitability that excludes the non-cash expenses of the income statement and includes spending on equipment and assets as well as changes in working capital from the balance sheet. In simple terms, it's the cash left over after a company pays for its operating expenses and capital expenditures (CapEx).
Businesses have various options when it comes to accessing financial capital. They can borrow from banks, issue bonds, or issue stock. Borrowing by issuing bonds or bank loans comes with the obligation of scheduled interest payments but allows the company to maintain control over its operations. Alternatively, issuing stock provides capital without debt but dilutes ownership and control. Reinvesting profits is another means of funding, but profits must be sufficient to cover investment opportunities, and sometimes external capital sources are required for growth and operational stability.