Page 275 - AFM Integrated Workbook STUDENT S18-J19
P. 275
Business valuation
2.3 Calculating free cash flow (FCF) from accounting information
When appraising individual projects, FCF can usually be estimated
quite easily. However, forecasting FCF for an entire company or
business unit is much more complex, since there are potentially far
more cash flows.
Therefore, for business valuation, FCF is more usually determined from
the already prepared accounting information i.e. by working back from
profits as follows:
Net operating profit (before interest and tax) X
Less: taxation (X)
Add back: depreciation X
Post-tax operating cash flow X
Less: Investment
Replacement non-current asset investment (RAI) (X)
Incremental non-current asset investment (IAI) (X)
Incremental working capital investment (IWCI) (X)
FCF X
263
