A question on real practice related to FCFF model
As you know, in CFA Curriculum, discounting all future FCFF and terminal value gives us firm value, then we get equity value by deducting market value of company’s debt from its firm value. Dividing equity value by the number of shares gives us the share value.
However, when reading equity analysis reports from some securities companies, I notice that after they calculate the firm value, in addition to deducting debt, they also add back cash. Only then they divide the figure by the number of shares to get the share value. The action of adding back cash is different from what I learn from CFA curriculum. So my question is that is this practice correct? It seems rational to me. What practice should I follow (add cash back or not) because it really makes a difference when you add cash back to get the equity value.
Please help me with this. Thank you very much. |