I’ve come across the definition of FCF a few times as below: free cash flow: Net income + Net interest after tax = Unlevered net income ± change in deferred taxes = Net operating profit less adjusted taxes (NOPLAT) + Net noncash charges ± change in net working capital -capital expenditures (capex) = Free cash flow (FcF) My question is not how you compute it, that makes sense. The finer point is that I’m not sure if I would ever chose to use it. I always thought that you always strive for FCFF or FCFE, perhaps CFO. The FCF described below seems very close to a FCFF. Anyway, having a tough time deciding if this formula has much use. Any thoughts?
if i remmber right, is not this from the credit analysis material? if so, it is just some method one of those credit analysis firms is using…whether we like it or not, they want us to know it…
I believe this is from the corporate finance section, calculating projected free cash flow for DCF. Fulloquestions, you are right that it’s close to FCFF. In fact, it IS FCFF. Ultimately, what the formula is doing is taking your NI, adding back noncash charges, interest after tax, subtracting NWC changes and CAPEX. That should answer your question on when to use the formula.
I’m not sure what is the issue here? The formula is for FCFF, it’s just presented differently. This formula is used very commonly in vaulation modeling.