Page 35 - FINAL CFA II SLIDES JUNE 2019 DAY 7

READING 30: FREE CASH FLOW VALUATION
EXAMPLE: Calculating FCInv with long-term asset sales
Suppose that Air Brush reports capital expenditures of $1,400,
long-term asset sales of $600, and depreciation expense of $850. MODULE 30.2: FIXED AND WORKING CAPITAL COMPUTATION
The long-term assets sold were fully depreciated. Calculate
Airbrush’s revised FCInv for 2017.

revised FCInv =capital expenditures − proceeds from sales of long-term assets=$1,400−$600=$800

Working capital investment = change in working capital, excluding cash, cash equivalents, notes payable, and the current portion of long-term debt
(+ if a reduction in working capital -it represents a cash inflow).
Interest expense - Add it back, but the after-tax interest!

Figure 30.2: Calculating FCFF and FCFE Using the Statement of Cash Flows
Unfortunately, you have to memorize a number
of free cash flow formulas to be fully prepared
for the exam. However, we can use the
statement of cash flows (as it is required to be
reported under U.S. GAAP) as a framework to
provide some intuition concerning the free cash
flow formulas and perhaps make it a little
easier to remember these formulas.

You can calculating FCFF/FCFE from
EBIT/EBITDA/CFO…