Calculating Free Cash Flow for Vasudevan Inc.

How much was Vasudevan Inc.'s free cash flow (FCF) in millions?

The free cash flow (FCF) of Vasudevan Inc. is $2.6 million (Option A).

Understanding Free Cash Flow (FCF)

Free cash flow (FCF) is a crucial financial metric that indicates the amount of cash a company generates from its operations after accounting for capital expenditures and changes in net operating working capital (NOWC). FCF provides insight into a company's ability to generate cash that can be utilized for various purposes such as paying dividends to investors, reinvesting in the business, or reducing debt. To calculate FCF for Vasudevan Inc., we need to follow these steps: 1. Start with the operating income of $4 million. 2. Multiply the operating income by (1 - tax rate) to adjust for taxes. In this case, the tax rate is 40%, so the adjusted operating income is $2.4 million. 3. Add back the depreciation of $1.2 million (since it is a non-cash expense) to the adjusted operating income to get $3.6 million. 4. Subtract the total of capital expenditure and the change in NOWC, which is $0.8 million, from the previous result to obtain the final FCF of $2.6 million. Conclusion: The free cash flow of Vasudevan Inc. for the period is $2.6 million. This metric is essential for investors and analysts to assess a company's financial performance, growth potential, and ability to generate cash for future activities.
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