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Question
In: Computer Science
Obermeyer Corporation issued the following statement of cash flows for 2017.
Obermeyer Corporation issued the following statement of cash flows for 2017.
(a) Compute free cash fl ow for Obermeyer Corporation.
(b) Explain why free cash flow often provides better information than “Net cash provided by operating activities.”
Solutions
Expert Solution
(a)
Free cash flow = $73,700 – $27,000 – $15,000 = $31,700
($73,700 - $27,000 - $15,000 = $31,700)
(Net cash provided by oper. act. – Purch. of equip. – Pmt. for div. = Free cash flow)
(b)
Cash provided by operating activities fails to take into account that a company must invest in new plant assets just to maintain the current level of operations. Companies must also maintain dividends at current levels to satisfy investors. The measurement of free cash flow provides additional insight regarding a company’s cash-generating ability.
(a)
Free cash flow = $73,700 – $27,000 – $15,000 = $31,700
($73,700 - $27,000 - $15,000 = $31,700)
(Net cash provided by oper. act. – Purch. of equip. – Pmt. for div. = Free cash flow)
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