I need to do a modelling at work and I don’t remember anymore these cash flow concepts.
As background, two things:
- I want to use IFRS and include interest expense in CFF, not in CFO
- the company I’m modelling has a negative net income for the first couple of years, so no taxes are paid.
My objective: project the company’s income statement, BS and full CF statement, but also calculate FCFF and FCFE to do its valuation.
So CFO = EBITDA - Change in NWK - Taxes
Now FCFF: the formula is FCFF = CFO + Interest expense (1-t)
Considering my CFO above, for me this should be FCFF = CFO - Interest expense * t as I don’t have any interest expense included in my CFO. So two questions:
- is this correct? i.e., should I still remove the interest shield from CFO to arrive at my CFF?
- in the first years when the company doesn’t pay any taxes, I suppose the Interest expense * t should be zero, right?
Thanks a lot for your help!!!