I’m having trouble getting my head around this.
What is the effect on FCFF if Net Income increases by 100 USD ?
In my opinion, the increase in FCFF should be more than the 100 USD increase in Net Income as FCFF is ‘‘pre-tax’’ measure and the Net Income is post-tax.
I feel like I’m missing something.
It’s not. To see this, look at how you back into FCFF when starting with EBIT or EBITDA. In both cases, EBIT and EBITDA are taken net of tax (i.e., EBIT * (1 - tax rate) )
As it was previously said, the Free cash flow is after tax and to see the impact of an increase in 100m in net income you have to make a breakdown of whats behind that increase, imagine that is a reduction in impairments, the Free cash flow will increase noting because when you make EBIT(1-T)+ D&A-Capex + WC changes, the D&A are less than previously, so you have more EBIT but less D&A