Financial Statement Modeling Practice Test

Free cash flow shows how much cash a company can generate after funding the investments needed to sustain or grow the business. It starts with cash flow from operations because that's the cash generated by ongoing activities. Capital expenditures are cash outflows for maintaining or expanding fixed assets. Subtracting capex from CFO yields the cash that can be returned to providers of capital or reinvested, i.e., free cash flow. This measure is about cash, not financing choices, so capital structure doesn't alter the definition; it's not about debt or equity decisions. There are related variants (like FCFF or FCFE), but the given definition matches the common textbook version.