Finance Manager Mock Interview
Master 25 Finance Manager interview questions covering budgeting, forecasting, and financial leadership.
Question 23 of 25
What is the difference between cash flow as presented on the Statement of Cash Flows and Free Cash Flow?
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Brian Schuchart is a CPA and Senior Finance Business Partner. His professional experience includes senior management roles with NBC Sports, Virtual Health, and the Children's Hospital of Philadephia.
This is a technical question that tests whether you know the difference between two common measures of cash flow. The main difference is Free Cash Flow excludes cash from financing activities (loan proceeds, dividends paid) while the Statement of Cash Flows includes those inflows and outflows.
Brian Schuchart is a CPA and Senior Finance Business Partner. His professional experience includes senior management roles with NBC Sports, Virtual Health, and the Children's Hospital of Philadephia.
"Free Cash Flow is typically defined as cash that is available for financing and dividends to shareholders. Therefore, free cash flow excludes financing activities such as loan proceeds and repayments and dividends to shareholders, while the statement of cash flows includes those items in the calculation of cash flow generated."
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The Statement of Cash Flow is used to measure cash and cash equivalents entering and leaving the company, whereas Free Cash Flow is used in the valuation of the company. Statement of Cash Flow is done by summing up operating, investing, and financing activities, while Free Cash Flow is operating cash flows less capital expenditure.
Chad's Feedback
You have done well to accurately answer this technical question by identifying the basic difference between the two common measures of cash flow. Good job! I have included an example below of how this response could be restated to improve clarity.
The Statement of Cash Flows is used to measure cash and cash equivalents entering and leaving the company and is calculated by adding up operating, investing, and financing activities, whereas Free Cash Flow is used for the valuation of the company and is calculated by deducting capital expenditures from the operating cash flow.
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