Which of the following statements is CORRECT?
A)Operating cash flow (OCF) is defined as follows: OCF = EBIT(1-T) - Depreciation and Amortization.
B)Changes in working capital have no effect on free cash flow.
C)Free cash flow (FCF) is defined as follows: FCF = EBIT(1 - T)
+ Depreciation and Amortization
- Capital expenditures required to sustain operations
- Required changes in net operating working capital.
D)Free cash flow (FCF) is defined as follows: FCF = EBIT(1-T)+ Depreciation and Amortization + Capital expenditures.
E)Operating cash flow is the same as free cash flow (FCF).

Question

Quizplus · Accepted Answer

Free cash flow (FCF) is defined as the cash flow available to the firm after required investments in operating assets and fixed assets. It takes into account EBIT, depreciation and amortization, capital expenditures required to sustain operations, and required changes in net operating working capital. Changes in working capital have a direct effect on free cash flow, as they impact the cash available for investments in fixed assets or distributions to shareholders. Operating cash flow is a measure of the cash generated by a company's operations and is calculated as EBIT(1-T) + depreciation and amortization - taxes. However, it does not take into account investments in fixed assets or changes in working capital, which are relevant for assessing a firm's free cash flow.

Which of the Following Statements Is CORRECT