标题: which one is bigger,FCFE or FCFF? [打印本页] 作者: AnalystAlan 时间: 2011-7-11 19:56 标题: which one is bigger,FCFE or FCFF?
notes said it's FCFF
but FCFE has net borrowing,wouldn't it be bigger?作者: MiniMe7 时间: 2011-7-11 19:56
Net borrowing can be negative if a company is paying off debt.
Net borrowing= newly issued debt - debt repayments
So if debt repayment is larger than newly issued debt, FCFE would be smaller.作者: tikfed 时间: 2011-7-11 19:56
depends on how much borrowing there is, i'd imagine.
If you repaid debt, then FCFE would be lower. If you borrowed, FCFE could be higher, if the borrowing is greater than the after-tax cost of interest that was recognized for the period?
havent thought that through, its early and i didnt have my coffee yet作者: troymo 时间: 2011-7-11 19:56
also one of the reasons why FCFE is not a good measure to value equity of a company if its capital structure is changing....
when company is in high growth mode - they would have large amounts of CAPEX.
Additionally the CAPEX would be financed thro' higher new borrowings - both the CAPEX and the new borrowing would offset each other.
CP作者: senlinlang 时间: 2011-7-11 19:56
FCFE = FCFF - Interest Exp*(1-tax rate) + Net borrowing
FCFF = FCFE + Interest Exp*(1-tax rate) - Net borrowing
Therefore which is greater depends on the interest expense (net of tax shield) and net borrowing.
Int exp(1-t) > net borrowing ----> FCFF is greater
Int exp(1-t) < net borrowing -----> FCFE is greater
