Answer
The purpose of free cash flow analysis is to determine the amount of discretionary cash flow a company has for the purchase of additional investment, retiring its debt, purchasing treasury stock or simply adding to its liquidity and financial flexibility.
Work Step by Step
Free cash flow is an important measure since it indicates how efficient a company is at generating cash.
Additionally, investors use free cash flow to determine whether a company might have enough cash right after funding operations and capital expenditure to pay investors through dividends and share buy backs.
