Which is best representative of company’s creditworthiness CFO, FCFF , FCFE or something else ?
Return and coverage ratio measures?
CFO prolly the closest, but im not positive. If im lending to you, I care mroe about how much you can organically generate in cash flow (CFO) more than CFF, CFI, right?
Map1 - there was a question on mock exams about creditworthiness. CFO is the best measure was answer. And what is the use of FCFF and FCFE to an analyst ? I tried finding in text, couldn’t find an answer
FCFF (regardless of how u calculate it) is useful to the analyst from the standpoint of making cash flow projections. The PV of future cash flows is the firms enterprise value and by taking out debt and adding cash, will get you to an equity value of the firm. Divide by shares outstandinga nd you have a fair value share price.
Also, can’t CFO be manipulated by management if they issue nothing but zero-coupon bonds? This will show up in the FCFF, but not CFO. I agree with mib that FCFF should be more reliable unless you make the adjustments to CFO.
rlange Wrote: ------------------------------------------------------- > Also, can’t CFO be manipulated by management if > they issue nothing but zero-coupon bonds? > > This will show up in the FCFF, but not CFO. > > I agree with mib that FCFF should be more reliable > unless you make the adjustments to CFO. For credit purposes though, i would go with cash flow returns and any solvency ratios.