For this particular question i am trying to use the ebitda method of calculation and I cannot arrive at the correct answer. I.e the calculations are 1178*(0.68)*270*(0.68)- 523 mln - 53mln. why is this not correct? what am i missing here?
Im happy to paste the full question here if that helps anyone.
Coincidentally i did FCF valuation today so I will help you out. If you’re using the EBITDA method, ensure you’re using this formula:
EBITDA(1-TAX RATE) + NCC*Tax rate - FCinv - WCinv
Don’t forget to exclude cash and notes payable from your working capital calculation.
yep thats the exact formula i used. I.e. i included depreciation in there.
I got the answer. How come you’re not ?
can you share your calculations please.
Make sure you add the depreciation * tax and not depreciation * (1-t)
yes I did (1178*0.68)+270*(0.32)-523-66= $298. the answer is 308. still not seeing where i am going wrong.
Working capital isnt 66, its 57.
It’s spelled out in the solution…
WCInv = Increase in accounts receivable + Increase in inventory – Increase in accounts payable – Increase in accrued liabilities = (770 – 711) + (846 – 780) – (476 – 443) – (149 – 114) = $57 million