Free Cash Flow (FCF) is defined as:

Free Cash Flow (FCF) is defined as the cash generated by a company's operations after accounting for capital expenditures (CAPEX). This measure is important because it indicates how much cash is available for the company to use for purposes such as paying dividends, reducing debt, or reinvesting in the business.

The formula specifically focuses on the cash from operations, which reflects the inflow of cash from the core business activities, and it subtracts capital expenditures, which are necessary to maintain or expand the asset base of the company. By doing this, FCF provides a clearer picture of the financial health and operational efficiency of a company compared to net income alone, as it avoids the potential distortions caused by non-cash expenses and accounting practices.

In contrast, net income plus depreciation does not capture the outflows for reinvestment, and therefore does not provide an accurate measure of cash available. Revenue minus operational expenses may indicate profitability but does not account for essential capital expenditures needed to sustain business operations. Lastly, net income minus dividends paid does not reflect the operational cash generation ability after capital spending. These aspects clarify why the definition provided by the second choice is the most accurate representation of Free Cash Flow.