In Schweser material it says: FCFF = EBIT (1-T) + Depreciation - FCInv - WCInv
However, in CFAI Blue Box it says: FCFF = EBIT (1-T) + Non Cash Charges - FCInv - WCInv
So which is it, are there ever times when calculating FCFF from EBIT that you’d add other non-cash charges other than depreciation?
You’ll add (net) non-cash charges always.
Schweser’s assuming that the only NCC is depreciation. That’s a bad assumption.
Thanks man, always appreciate your answers. What about when calculating FCFF from EBITDA? You only add back the depreciation tax shield and nothing to do with NCC?
I just checked the curriculum and the formulae starting with EBIT and starting with EBITDA show only depreciation as the only non-cash charge. So that’s the way you should handle it. (Presumably in a question about those they won’t list any other non-cash charges such as amortization or income from an affiliate.)
In the real world, however, you may have more non-cash charges than simply depreciation, so you should include all of them. But that’s beyond the scope of the curriculum.