since it’s inherently consistent,how to memorize it more easily ?thanks
Try remembering FCFF formulas and then make the necessary adjustments. I’ve take the following understanding from Schweser on how to calculate FCFF from an Income Statement or CFS FCFF = NI + NCC +Int *( 1-t) - FCI - WCI But NI + NCC - WCI = Cash from operations FCFF = CFO + Int ( 1-t) - FCI
about 5 years ago i had to remember sets of conditions in which reactions could occur to turn certain chemical groups into other chemical groups to remember it, i got some paper and wrote them down 5 times then i did it again the next day and again the next day and again the next day i think you get the picture…
thank you both. the reason why i try to remember all equation is that when you are given only EBIT or EBITDA to derive FCFF FCFE,and you don’t know the INHERENT consistence,you cannot change to use one you remembered.you get suck. could you guys using one formula to get the others using financial basics? That will help a lot,and hard to forget.
If you’re given the EBITDA formulas, create a dummy Income Statement and compare it with the basic FCFF formula ( NI + NCC +… ) You’ll realize what formula comes in where, and that should help you. Basically, I believe if you remember you IS/BS/CFS basics and remember 1 formula, that should do fine. You can derive the other two.
if you get ebit or ebitda, do it the long way and figure out what you need to do to get ebit or ebitda into ni, and then use the normal ni formula
Remember the NI formula. FCFF=NI+Depr+Int(1-T)-FCInv-WCInv Now remember NI = (EBITDA-Depr-Int)(1-T) substitute (and like terms together) FCFF=EBITDA(1-T)-Depr(1-T)+Depr -Int(1-T)+Int(1-T)-FCInv-WCInv =EBITDA(1-T)+Depr(T)-FCInv-WCInv NI = (EBIT-Int)(1-T) So FCFF = EBIT(1-T)+Depr-FCInv-WCInv FCFE=FCFF-Int(1-T)+Net Borrowing (only 1 formula to remember)
Don’t memorize the different formats. If you understand what the components are, you can figure it out from the basic formula regardless of what they throw at you.
I don’t think it could be explained any better than it is in the CFAI text. Part of what cpk123 posted.
great job,CP.thanks very much,that is what i want.
you just answered your own question with the thread title…DONT MEMORIZE think about what you’re deriving and how you need to get there. NI is after EBIT is after EBITDA think about the numbers that come out to get to NI and take them out when starting with EBIT or EBITDA
CPK123’s Formula kicks ass. Awesome. I wont forget that ever. @CPK123 - Thanks a lot