Net Borrowing

“Net Borrowing,” as a summand in the FCFE formula, definitely includes the y-o-y increase in Notes Payable and Long-term Debt but does it include the increase in Current Portion of Long-term Debt?

It should. Just think of net borrowing as the increase in all outstanding debt (so long-term debt + its current portion).

Yes it includes current portion?

Also, I didn’t know it was yoy? I thought it was total.

Yes, include the current portion.

Net borrowing is “debt issued less debt repaid over the period for which one is calculating free cash flow.”

So if you’re trying to figure out how much debt was issued and repaid over the relevant period, you look at the change in debt amounts listed on the balance sheet.

Make sense?

Another way of thinking about it: with FCFE you’re trying to figure out how much cash was generated for equity holders during the period.

If the amount of debt on the balance sheet went up a lot during the period, that means debt buyers handed a bunch of cash to the company which is now available to the equity holders.

If the amount of debt went down during the period, the company forked over a bunch of bash to the debt holders. That cash is no longer available for the equity holders.