FMA-II 3 of 3: Free cash flow and its importance to business

Free cash flow and its importance to business
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Free cash flow and its importance to business
Free cash flow is cash flow originating from operations that is net cash flows earned from operating activities less than cash required for capital expenses. Stakeholder dividends are also occasionally deducted. Free cash flow indicates that the sources of cash in a business include operating activities, financing activities, and investing activities (Lasher, 2011). This paper seeks to discuss free cash flow and its importance to business.
Free cash flow is available cash in the firm to be distributed in terms of investor dividends. Cash runs businesses. Cash is king. It is needed to distribute payroll, pay investors, and to make interest payments. Free cash flow is prepared by using two balance sheets and one income statement. Free cash flow is important to business because it provides both uses and sources of cash for business (Lasher, 2011).
Free cash flow is important to business because it represents the surplus cash available after investing and operating cash flows have been fully determined. Free cash flow is also important in that it indicates the ending balance of cash after a number of cash flow series. The free element in the free cash flows shows that the positive cash flow that originates from the calculation of free cash flow is free to be used in other ways other than the pre-allocated ways or particular uses such as for corporate sustainability and operations (Lasher, 2011).
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