Talk:Free cash flow/Archives/2014

Interest Inconsistency?

It seems like the two methods of determining free cash flow are not entirely consistent in the article. The first method presented shows that "Free Cash Flow = Net Income + Interest + Dep/Amort - Changes in Working Capital - Capex". The second method uses "Free Cash Flow = Cash Flow from Operations - Capex", where "Cash Flow from Operations = Net Income + Dep/Amort - Changes in Working Capital". Thus, the implication with the second method is that Free Cash Flow = Net Income + Dep/Amort - Changes in Working Capital - Capex. The second method makes no mention of "interest" whereas the first method does. Why is this so? It seems like an inconsistency. Could somebody clarify/correct this? —Preceding unsigned comment added by 128.97.179.16 (talk) 06:40, 1 April 2010 (UTC)

Consider the following: FCF=EBIT(1-T) assume capex+dNOWC=0, all financing is debt.

tax 40%

Case 1 EBIT=10 Int expense=10 EBT=0 Tax=0 NI=0 FCF=6

Case 2 EBIT=20 Int expense=10 EBT=10 Tax=4 NI=6 FCF=12

FCF=EBIT(1-T) assume capex+dNOWC=0, all financing is debt.

I am not sure how the FCF adds up to 6 but the investors get 10 in case #1, and likewise the FCF adds up to 12 and the investors get 10 and the owners get 4. Does the FCF take tax paid by each investor into consideration?

Yep, it's wrong. FCFF = CFO + Int(1-t) - Capex (see for example, CFA material, or any other accounting book).

Someone whould fix this, I don't know how to do it. — Preceding unsigned comment added by 209.133.7.250 (talk) 22:45, 8 January 2014 (UTC)