just want to ask a question about FCFF
if the ebit is positive, for example 100, while the EBTis negative, for example -20
if i start from EBIT to calculate the FCFF, do i still use EBITx (1-Tax) even though EBT is negative and no tax is needed to be paid in the income statement??
Yes. FCFF requires the net operating profit after subtractiing operating cash tax.
The whole point is measuring your operating performance delevered.
thanks for your reply
but
FCFF = EBIT x (1-tax) + depreciation - capex - change in working capital
and
FCFF = net income + interest x (1-tax) + depreciation - capex - change in working capital
so EBIT x (1-tax) = net income + interest x (1-tax)
if in the income statement
EBIT = 100, interest= -120, EBT = -20, net income = - 20, tax = 30% (no tax because EBT is negative and EBT=net income)
then EBIT x (1-tax) = 100x (1-30%) = 70
then net income + interest x (1-tax) = -20 + 120 x (1-30%) = 64
and 70 not equal to 64
can anyone further explain??
my idea is that if you look at the case of
EBIT = 100, interest= -120, EBT = -20n net income = -20
if FCFF mean the free cash flow available to debt and equity holder, then FCFF in this case should be 100
because tax is 0 in this case and that whole 100 is attributable to the debt and equity holder
is my idea correct???
You did not apply a tax carry-forward loss. EBT is -20, and NI is -20*.7= -14.
100*0.7 = -14 + 120(0.7) = $70
In real terms, you’d have to adjust for deferred taxes (if it’s material enough to demand the effort), but we are assuming DTLs and DTAs offset at some point.