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- Topic: Free Cash Flow - How to calculate it?
| Author | Topic: Free Cash Flow - How to calculate it? |
|---|---|
| mathes @2008-03-23 11:20:53 |
FCF = EBIT(1-tax rate) + D&A - CapEx - Net Working Capital or NI + dep/amortization - CapEx - NWC so, the question is, why is EBIT(1-t) used in one case and NI in the other? |
| chichibaba @2008-03-26 23:33:28 |
The first equation is more theoratically correct. You are measuring cash flow availiable to all providers of capital after operating expense and other necessary investments. You take out interest because they are a form of cash flow to debt holders, not an operating expense. The second equation is just easier to pull from financial statements, as you don't have to add back the after-tax affect of interest. |
CFA Discussion Topic: Free Cash Flow - How to calculate it?
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
