Free Cash Flow Calculation: Understanding Duckalo's Financial Situation

How can we calculate Duckalo's free cash flow?

Given:

Net cash flow from operating activities = $110,000

Purchases of equipment = $80,000

Repurchases of stock = $18,000

Answer: Duckalo's free cash flow is $30,000

Understanding the concept of free cash flow is essential for assessing a company's financial health. Free cash flow represents the amount of cash a company generates after accounting for its capital expenditures and other operating expenses. Essentially, it is the cash available for distribution to investors, debt reduction, or reinvestment in the business.

In Duckalo's case, we can calculate the free cash flow by subtracting the planned investments in long-term assets (purchases of equipment) and any cash dividends from the net cash flow from operating activities.

Given that the net cash flow from operating activities is $110,000, purchases of equipment amount to $80,000, and repurchases of stock are $18,000, we can compute Duckalo's free cash flow as follows:

Free Cash Flow = Net cash flow from operating activities - Purchases of equipment - Repurchases of stock

Free Cash Flow = $110,000 - $80,000 - $18,000 = $30,000

Therefore, Duckalo's free cash flow is $30,000. This amount represents the cash available to Duckalo for various financial activities, giving insights into its financial performance and flexibility.