Hi All - Just did a mock exam and there was a question requiring a FCFE calculation. Given was an exerpt of the balance sheet and income statement. The vignette says that there is no preferred stock or long-term asset sales in 20x9 (the year of interest) The solution was to start with CFO and add the outflow of CFI as a proxy for fixed capital investment and then subtract net borrowing. I was thrown but the use of CFI as a proxy for for fixed capital investment … is it always the case that CFI reflects all FCinv and, if not, when does that relationship breakdown?
I saw that same procedure while doing a Kaplan mock test. It makes sense logically, but there is nowhere in the CFA curriculum where it is written in stone (I looked)
It’s not always the case and I don’t think alone it would be a good proxy, nor a good exam question.
You get dividends received, purchase of debt/equity securities etc in your CFI which are not relevant.
All that you really care about within the CFI for FCInv is your purchases/sales of PP&E.
Now if the Mock showed you the CFI components, and all it consisted was the relevant components, then you could use it.
Would be interested to hear the thoughts of others as I’m only partly sure of what I’m saying here…
That one threw me for a loop also, as I hadn’t remembered seeing it.
Sounds like we’re all on the same page. I can think of situations where CFI makes sense but I can certainly think of exceptions. Either way, glad I’m not missing something obvious. The hardest part of this exam is figuring out what sort of “approximations” they want you to make in any given exam question.