Is there only one formula we need to know? FCF = CFO - Net CFI
I believe so, considering that FCF is just the CF for discretionary purposes, i.e. after disbursements to maintain productive capacity of the firm, CFO - net CapX seems to be saying just that. I don’t think there’s anything else to it. Are you thinking FCF available to equityholders or something?
Every question I’ve seen that formula has been good enough, but if prefered dividends get mentioned in the question, they might have to get thrown in as well.
All I know about FCF is that it’s discretionary cash that’s calculated subtracting net CAPEX from cash flow from operations and it can be used as a discount rate to discount and calculate the free cash flow to equity (but then that’s L2) - Dinesh S
Dimes27 Wrote: ------------------------------------------------------- > Every question I’ve seen that formula has been > good enough, but if prefered dividends get > mentioned in the question, they might have to get > thrown in as well. as in subtracted from CFO?
Yes, I meant CFO - net Capital Expenditures. I think it is FCF available to equityholders? I think FCF available to everyone would be CFO - net Capital Expenditures + interest on debt adjusted for tax. Is that correct?
Is that what you mean, Dimes? FCF availabe to everyone would be CFO - net Capital Expenditures + interest on debt FCF available to common and preferred CFO - net Capital Expenditures FCF available to common CFO - net Capital Expenditures - preferred dividends
yes and yes. I think I remember the book making a point of that, since preferred dividends aren’t considered an optional cash flow, unlike common share dividends, or at least not always.
FCF Owners = CFO - CFI FCF Discretionary = CFO - Cap Ex. These are the two formula in Stalla. Once more in the CFAI Text FCF = CFO - Dividends - (Plant Assets Purchase - Plant Assets Sales) (Plant Assets Purchase - Plant Assets Sales)= Capital Expenditures - Disposals.
hmm … interesting, even though I doubt it will come up