Very confusing FCFF question?

CFA Level II
#1

Can someone explain me the relationship between Value of firm, FCFF, FCFE ,Operating assets and non operating assets. :frowning:

Q no 17,Pg 249 in equity

#2

Also please explain

“Forward P/E The forward P/E is a major and logical alternative to the trailing P/E because valuation is naturally forward looking. In the definition of forward P/E, analysts have interpreted “next year’s expected earnings” as expected EPS for he next four quarters; the next 12 months; or the next fiscal year.”

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#3

sad

#4

what don’t you understand here?

#5

forget man

please tell formula for price/cash per share

#6

there are different definitions of cash used in P/CF ratio; usually we use NI + NCC or NI + Int(1-tr) + Non-recurring items(1-TR).

We should be given guidelines which cash flow to use. Sometimes it can even be FCFF or FCFE.

#7

is formula for p/cf= 1+g/ke-g ?

#8

With the parentheses, yes.

#9

is this formula in CFAI curriculum? i haveen’t seen it…

what is ke?

#10

Operating assets : those assets that generate (operating) cash flow for the firm: buildings, machinery, vehicles, inventory, accounts receivable, prepaid expenses, sometimes cash.

Nonoperating assets : those assets that do not generate (operating) cash flows for the firm: land (usually), cash (sometimes), investments in securities, goodwill.

Firm Value : Value of the firm’s assets. Sometimes we use operating assets as a proxy for firm value, believing that the value of nonoperating assets is small in comparison.

Equity Value : Value of the firm less market value of the liabilities

FCFF ( Free Cash Flow to the Firm ): Cash flows that can be used for any purpose in the firm, including paying a return to debt and to equity.

FCFE ( Free Cash Flow to Equity ): Cash flows that can be used to pay a return to equity, after the return to debt has been paid.

Firm Value = Value of operating assets + Value of nonoperating assets

Firm Value ≈ Value of operating assets = PV(FCFF) discounted at WACC

Equity Value = Firm Value – Market Value of Liabilities

Equity Value = PV(FCFE) discounted at rCE

#11

Thanks magic sir

#12

You’re quite welcome.

How’re you doing in general? Ready for this?

#13

Magic sir today i will start CFA mock 2013 in a few hours time. Revising ethics before starting

Lets see how much i score will really tell whether i am ready or not

#14

Would you be kind enough to give me the rationale/logic behind the following:

  • Net Operating Liabilities, what do they include? I believe to think they are All Liabiilities that are non-interest bearing (I got smacked with 2013 Mock and can’t figure it out

  • NOAt - NOAt-1 is the Balance sheet Accruals. What is the exactly telling me? Why do I care in comparison to calculating it with the Accruals via Cash Flow: NI – (CFO + CFI)

If they are both an accrual ratio, why are they always different answers?

What is exactly included in this calculation, I swear I can never get it right.

#15

S2000, what kind of liabilities/debt we should use when deducting from FCFF and EV to get equity value?

I encountered that in FCFs models we use LTD, STD and A/P but in EV only LTD. Is that right?