Components to calculating FCFF can be different depending on if BS is given in IFRS or USGAP?
you just mean that different accounting systems produce different numbers? or are you actually talking about the components of FCFF? because i’ve never heard anything like that.
Look out for what needs to be included in non-cash charges and working capital investment. Depreciation being the dominant one, but it turns out there could be a couple miscellaneous items as well. Working capital investment doesn’t include notes payable, cash or equivalent and current portion of LTD. It does include tax payable.
No. I am talking about the issue where dividends paid are part of CFO. in that case, I guess we add back dividends paid to FCFF and FCFE.
pepp Wrote: ------------------------------------------------------- > No. I am talking about the issue where dividends > paid are part of CFO. > > in that case, I guess we add back dividends paid > to FCFF and FCFE. I’m guessing that this is something that was left out of schweser. Thankfully, you’re typically calculating FCFE/FCFF in equity valuation problems, not FSA problems. Since they’d be in equity problems, IFRS wouldn’t be assumed, if my interpretation of CFAI’s letter is correct.
I thought the letter said assume IFRS at all times…
If I remember correctly, cash dividends paid are classified as CFO under GAAP and CFF under IFRS? I think technically, you should add back cash dividends into CFO under GAAP when you are calculating FCFF/FCFE from CFO. This way, the resultant FCFE would be truly what is available to the shareholders. This doesn’t seem to impact what we already know under IFRS I believe.
MT327 Wrote: ------------------------------------------------------- > I thought the letter said assume IFRS at all > times… From the letter directly: “For questions relating to financial reporting and analysis, you should assume International Financial Reporting Standards (IFRS) apply unless otherwise noted.”
sorry, I am all confused now Could anyone sum up in what situation, what’s the difference between IFAS and US GAAP in terms of treating FCFF using CFO method?
Interest/dividends can be classified as CFO or CFF I think, just to name off or the top of my head?
ok is this pretty much bullsh1t that i shouldn’t concern myself with?
I think i understand this issue now. under IFRS, dividends paid can be part of CFO. hence when computing FCFF, we have to add back those dividends. Does it make sense to anyone? In GAAP dividends paid is always CFF, so it really doesn’t affect FCFF/FCFE computation starting from NI, or from CFO.
Mate, have you seen a question on this?
you’re wasting your time, you will not have to deal with anything like this. the probability of you being asked to adjust 2 sets of GAAP/IFRS financial statements to make them comparable for the purpose of computing cash flows is 0.
btw i’d recommend not to start making adjustments to the cash flow statement when you reach a free cash flows problem, unless you’re asked to do so
I have not seen any questions, but refer to page 362 of book 5. you’ll see what i am talking about
I just looked through wiki. It looks to me as far as the various cash interest / dividends paid/received are concerned, the only difference between GAAP and IFRS is cash interest paid (classified under CFO in GAAP and under CFO or CFF in IFRS). Cash dividend paid is classified under CFF in both GAAP and IFRS. Therefore, you don’t need to be concerned about dividend adjustment in CFO when deriving FCFF/FCFE. http://en.wikipedia.org/wiki/Cash_flow_statement#Financing_activities
This might be of help to you guys… http://www.schweser.com/online_program/blog.php?item_id=654 Good Luck.
Unrealized FX gains/losses for available-for-sale securities (p. 117) Impairments and revaluations (p. 122) Accounting for joint ventures (p.126) Some aspects of the purchase method (pp. 134-5) Special purpose entities (pp. 136-7) Reported funded status of defined benefit plans (pp. 170-1) Treatment of subsidiaries in hyperinflationary environments (pp. 189, 205-6) Page #s are from Schweser.
Just double checked with my Level 1 notes. Dividends paid are classified under *CFF* (not CFO). This is a false alarm.