Accounting statements represent a company\'s earnings, but this is not the real

Question

Accounting statements represent a company's earnings, but this is not the real cash that a company generates. Earnings data can be manipulated and can be deceiving. Thus, corporate decision makers and security analysts focus on the free cash flow that a firm generates to analyze the company's real cash position. Which of the following statements best describes free cash flow? The amount of a firm's available cash used to write off capital expenditures and depreciation The amount of a firm's available cash that can be used without harming operations or the ability to produce future cash flows Suppose you are the only owner of a chain of coffee shops near universities. Your current cafes are doing well, but you are interested in starting a fine-dining restaurant. You decide to use the cash generated from your existing business to enter into a new business. Your accountant provides you with the following data on your current financial performance: Based on your evaluation you have $88,157 in free cash flow. Can a company have negative free cash flow? No Yes

Explanation / Answer

1 )option 2 )The amount of firm's available cash that can be used without harming operation or ability to generate future cash flow.

2)Fre cash flow = EBIT (1-Tax) +depreciation -net increase in working capital -capital expenditure

                           = 99000 (1-.35) + 18857 -2970

                          = $ 80,237.

**Current asset - 14850 cah + 7920 supplies = 22770

current liabilities = 7920 for supplies on credit + 4950 for acruals = $ 12870

Net increase in working capital = $ 2970

3)Yes,free cash flow can be negative.

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