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statement of cash flows, cash provided by operating activities is intended to indicate the cash-generating capability of the company. Analysts have noted, however, that cash provided by operating activities fails to take into account that a company must invest in new property, plant, and equipment(capital expenditures) just to maintain its current level of operations. Companies also must at least maintain dividends at current levels to satisfy investors. A mea surement to provide additional insight regarding a company's cash-generating ability is free cash flow. Free cash flow describes the cash remaining from operating activities after adjusting for capital expenditures and dividends paid.
Consider the following example: Suppose that MPC produced and sold 10,000 personal computers this year. It reported $100,000 cash provided by operating activities. In order to maintain production at 10,000 computers, MPC invested $15,000 in equipment. It chose to pay $5,000 in dividends. Its free cash flow was $80,000 ( ). The company could use this $80,000 to purchase new assets to expand the business, to pay off debts, or to increase its dividend distribution. In practice, analysts often calculate free cash flow with the formula shown below. (Alternative definitions also exist.)

We can calculate Best Buy's 2009 free cash flow as follows (dollars in millions).
Cash provided by operating activities $1,877
Less: Expenditures on property, plant, and equipment 1,303
Dividends paid 222
Free cash flow $ 352

Buy generated free cash flow of $352 million which is available for the acquisition of new assets, the retirement of stock or debt, or the payment of additional dividends. Long-term creditors consider a high free cash flow amount an indication of solvency. hhgregg's free cash flow for 2009 is $7.7 million. Given that hhgregg is considerably smaller than Best Buy, we would expect its free cash flow to be much lower.

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