标题: FCFE: net borrowings [打印本页] 作者: anish 时间: 2011-7-11 20:06 标题: FCFE: net borrowings
When adding "net borrowings" to arrive at FCFE, this is simply the change in debt correct (i.e. additional ST debt + additional LT debt)? Just wanted to be sure.作者: SFoyil 时间: 2011-7-11 20:06
In 1 of the mock exams, the solution given was (change LT debt - change in NP)
I still can't figure out why they didnt add them to get the net borrowings figure ..
can anyone help?作者: flyinggirl 时间: 2011-7-11 20:06
I think it's another mistake cause net borrowings = (Change LT debt + Change N/P) not (Change LT Debt - Change N/P) but the plan im going to follow is if it was asked in the exam, ill try both ways and see what fits best cause seems to me every time it is solved in a different way..作者: jarobi04 时间: 2011-7-11 20:07
Net borrowings = net increase in notes payable + net increase in LTD + net increase in short term debt - repayments + any new issuance of stock.作者: comp_sci_kid 时间: 2011-7-11 20:07
I am certain that debt payments have to be subtracted.
However I am not sure if new issuance of preferred stock needs to be added or not?作者: redskins44 时间: 2011-7-11 20:07
FCFE is cash available to equity holders and issuance of equity, share repurchase and payment of didvidend has no impact on it
issuance of common stock is ignored from FCFE , however issuance of preferred stock is included (preferred div treated just like debt without tax shield)作者: FinancialAnaly 时间: 2011-7-11 20:07
so i assume the implication is that the calculation used in question 51 of the mock afternoon session is incorrect?作者: random_walker47 时间: 2011-7-11 20:07
It is increase in LTD MINUS increase in N/P.
This is because N/P will be repaid within the operating cycle so we cannot include it in cash flow available to equity.作者: spreads 时间: 2011-7-11 20:07
psriniva Wrote:
-------------------------------------------------------
> All right. after going through all the responses
> above, I am totally confused about how to treat
> the Notes Payable. Some of the responses are
> conflicting with others in this thread.
> Would some one please tell us all how to treat
> Notes payable while calculating Net Borrowing.
I got it.
Anyone get the schweser videos? They have two slides specifically treating Net Borrowing.
Net Borrowing Adjustments
1) Long Term Debt:
- ADD debt issuances to net income to arrive at FCFE
- SUBTRACT debt repurchases from net income to arrive at FCFE
- Net Borrowings = new debt - debt repurchases
2) Notes Payables:
- Increase in notes payables, ADD to FCFE
- Decrease in notes payables, SUBTRACT from FCFE
3) Current Portion of Long Term Debt
- Increase in short term debt, ADD to FCFE
- Decrease in short term debt, Subtract from FCFE作者: luda002 时间: 2011-7-11 20:07
I think we have consensus that an increase in NP is an increase in net borrowing. Can we also agree that an increase in preferred stock is an increase in net borrowing? We seem to have conflicting statements.作者: zhaoyp 时间: 2011-7-11 20:07
Yes - issuance of preferred stocks increase net borrowing as they are treated like debt when calculating FCFE. They decrease net borrowing when dividends are paid on them or when they are no longer preferred, i.e. they are converted to common via a warrant or called via an option.作者: tarunajwani 时间: 2011-7-11 20:07
Hello there everyone.
The concept of net borrowing is as follows
When you calculate FCFE you subtract the whole of FCINV and WCINV whereas we all very well know that a company is financed with both debt and equity. Since we have subtracted whole of the WCINV and FCINV by adding net borrowing we are simple adjusting the FCINV and WCINV for the investment made by equity holders
i.e (-WCINV-FCINV+net borrowings)= portion of the investment attribuable to equity holders.
secondly any current portion of long term debt/notespayable should not be included in net borrowings because this will be paid within the next year so it is not really a free cash flow available to the equity holders.
As regards the question that you have mentioned about the mock exam there are two mistakes in it
1) You do not include cash in calculation for working capital but they have included it.
2) Since they have included notespayable in wcinv already they are just subtracting it from the net borrowing which is again a wrong approach as notespayable should not have been included in wcinv in the first place.
