Ratios: Free Cash Flow

Concept: Ratios: Free Cash Flow


Problem: ABC Company’s Statement of Cash Flows indicated the following: Cash Flows from Operating Activities $120,000; Cash Flows from Investing Activities ($80,000); and Cash Flows from Financing Activities $200,000. Other information includes the purchase of Land for $25,000 and Machinery for $15,000. During the year, ABC Company paid $10,000 in dividends. What is ABC’s free cash flow?


Problem: XYZ Company uses the indirect method to calculate cash flows from operating activities. This year the cash flows from operating activities totaled $60,000. The company paid $10,000 in dividends and obtained a loan from the bank of $50,000. The company also purchased Equipment for $20,000 and Land for $10,000. What is XYZ’s free cash flow?