Why should I choose AnalystNotes?
Simply put: AnalystNotes offers the best value and the best product available to help you pass your exams.
Basic Question 3 of 7
Connie's Sporting Goods (CSG) has net income of $805 million for 2011. Using information from the CSG's financial statements below, use the EBIT approach to find what FCFF and FCFE should be for CSG. Assume the income tax rate is 30%.
User Contributed Comments 5
| User | Comment |
|---|---|
| blackberry1 | CAN SOMEONE EXPLAIN NET WORKING CAPITAL PART? LIKE WHY IS -52 AND NOT POSITIVE? THNKS |
| aravinda | You can think of it this way.... Any increases in current liability (ex: AP) is increase in cashflow and any decrease in current asset is a decrease in cashflow... In the calculation of CFO, these 'signs' are already taken into consideration...so for the actual values you just the opposite sign... hope I was clear... |
| Allen88 | Thanks aravinda! |
| quanttrader | yes, since CFO = NI + NCC - WC(inv), then as aravinda has said we will use opposite signs since FCFF = CFO + int(1-t) - FC(inv) |
| davidt876 | lackberry1 - you can just use the numbers as they appear. i agree that flipping all their signs just to multiply their sum by (-1) seems a little redundant but you should understand why an increase in current assets - like inventory and receivables - represent a cash outflow.. in the same way an increase in fixed (tangible) assets represents a cash outflow and is subtracted as well |
Thanks again for your wonderful site ... it definitely made the difference.
Craig Baugh
Learning Outcome Statements
explain the appropriate adjustments to net income, earnings before interest and taxes (EBIT), earnings before interest, taxes, depreciation, and amortization (EBITDA), and cash flow from operations (CFO) to calculate FCFF and FCFE;
calculate FCFF and FCFE;
CFA® 2025 Level II Curriculum, Volume 4, Module 22.