Worst fcf formula and seems to show up quite often: FCFE = eps - (capex - depr) (1- debt ratio) - (chg working cap x 1-debt ratio) It’s throughout EOC’s, schweser, etc. Would bet it’s on saturday. And it’s pain to remember.
If it helps, you could re-arrange this one to: FCFE = NI - (1-DR)(FCI+NWC-Depr) NI - Net Income FCI - Capex NWC - Change in Working Capital Not a big change, but might make it a tad easier 
highly…highly unlikely to be on the exam
instead of Net Borrowing u just muliply by 1-DR How do you find DR? given?
thegooddocta Wrote: ------------------------------------------------------- > highly…highly unlikely to be on the exam Interesting you think that, b/c I agree, this was all over the Equity EOC q’s
DR is usually given in item set. Thks meshed that does help
Please don’t try to remember countless formulas. Use the same FCFE that you know. This DR thing is just netborrowing. If they say FCinvest and WCinvest are financed with 30% debt, then you know your netborrowing right there. Just make sure that you apply that to net FCinvestment (i.e., FCInvstm - deprectaion).
Dreary Wrote: ------------------------------------------------------- > Please don’t try to remember countless formulas. > Use the same FCFE that you know. This DR thing is > just netborrowing. If they say FCinvest and > WCinvest are financed with 30% debt, then you know > your netborrowing right there. Just make sure > that you apply that to net FCinvestment (i.e., > FCInvstm - deprectaion). Agreed. But if they do not give you net borrowing, you can use this formula to forecast it w/ the company’s desired debt ratio.
You don’t need to do anything other than what the original formula says. They have to give you you DR, or you woldn’t be able to do it anyway. This is like you knowing A=L+E, do you also have to remember that L = A - E? And E = A -L?
I find it easiest to remember this equation in the same order which the original equation of FCFE was given that now flows as freely as the salmon of capastrano. FCFE = NI + (1-DR)(Depr - FC - WC) as the original equation is FCFE = NI + Depr - FC - WC + NB so just get rid of NB and multiply everything except NI by 1-DR
There are questions in the EOC’s, where they do not give you a balance sheet. They instead say, here is NI, projected NWC = 5% of marginal revenues, projected FCInv = 1,000/year, & Depreciation = 200/year. The company’s target debt ratio (D/D+E) = .5. Project next years FCFE. The formula you present is for computing FCFE when you have the financial statements. The formula in the first post is used for prospectively forecasting FCFE.
ftwcfa Wrote: ------------------------------------------------------- > There are questions in the EOC’s, where they do > not give you a balance sheet. > > They instead say, here is NI, projected NWC = 5% > of marginal revenues, projected FCInv = > 1,000/year, & Depreciation = 200/year. The > company’s target debt ratio (D/D+E) = .5. Project > next years FCFE. > > The formula you present is for computing FCFE when > you have the financial statements. The formula in > the first post is used for prospectively > forecasting FCFE. That works fine, but they also have to give you the revenue figure, or you won’t be able to deduct NWC in either formula. So, if DR=0.50, then netborrowng would be 0.50 * (FCInv -Dep) + 0.50 * NWC.
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This formula is a must know. The other ones with CF in fixed income, now testing on those would be unfair.