标题: Ways to SCREW us with FCFF and FCFE [打印本页] 作者: badonkus 时间: 2011-7-13 16:18 标题: Ways to SCREW us with FCFF and FCFE
I believe the best offense, is a good defense.
When calculating FCFF or FCFE from Net Income:
Look out for Non Cash Charges besides Depreciation in the Income Statement:
Gains or Losses on Sale of PPE
Unrealized Gains or Losses on HFT Instruments
Inventory Write Downs
Asset Impairments
Deferred Tax Assets / Deferred Tax Liabilities
...can anyone else think of other NCC we might see?
Note: If it says in the vignette that the DTA or DTL are not expected to reverse in the future, I believe we can consider the DTA a loss and the DTL a gain (hopefully that won't come up)
When calculating FCInv (depending on WHAT they give --- these are all diff scenarios):
FCInv = FCInv (no, im not crazy, this is when the only info they give is "FCInv")
FCInv = CapEx
FCInv = Gross PPE (t) - Gross PPE (t-1)
FCInv = Net PPE (t) - Net PPE (t - 1) + Depreciation (t)
FCInv = CapEx - proceeds from sale of L/T assets
Remember, if they give a "gain on sale of LT assets" that is NOT what you use to calc FCINv - cause it is based on (Salvage Value - Book Value) We want the actual CASH that changed ie Company X sells PPE worth $100 which had a book value of $150, resulting in a loss of $50 (ignore taxes). But in CASH terms, FCInv actually decreased by the $100 they got for the assets, thus increasing FCFF/FCFE.
They may also lump Land into PPE, or Net PPE - seen this a few times. Land is never depreciated, so remove it from whatever PPE account you are dealing with (if they sneak it in there)
Interest (1 - tc):
Remember - if they say something like "In 2009, interest income from HTM securities was $100" - how does this impact FCFF in 2009 - remember interest INCOME reduces interest EXPENSE so = Interest (1 - tc) will be reduced
Also, if non-recurring items (cash-based) are included in Net Income, do we automatically remove them? Or is that a FSA quality of earnings type of question ...?
K that's all. Feel free to add. I bet at least one of these tricks will come up !!!作者: liquidity 时间: 2011-7-13 16:18
I would add:
Amortization of bond discounts/premiums and Restructuring Charges to NCC
and, the tricks around converting from EBITDA, EBIT, etc.
also, here's (I think) a better way too look at Net PPE that has the different effects. Pls double-check the signs, but I think it's a keeper:
Beginning Net PPE - Depreciation + FCInv(solve) + Proceeds from PPE Sales - Book Value of Assets sold = Ending Net PPE作者: smuggycfa 时间: 2011-7-13 16:18
wondering about this:
FCInv = Gross PPE (t) - Gross PPE (t-1)
FCInv = Net PPE (t) - Net PPE (t - 1) + Depreciation (t)
how do you know if what you're being provided is the gross or the net? may sound like a dumb question, but on the mock, I first used the bottom formula (adding depreciation), and didn't get an answer that was valid. Then I used the top one, and got one, so I picked it. I don't really want to be dicking around with that on game day作者: bolligerallstar 时间: 2011-7-13 16:19
Unless the question reports Net PP&E, assume it's GROSS PP&E...作者: ninja1024 时间: 2011-7-13 16:19
Exclude cash/equivalents from CA and short term debt/notes payables/current portion of LTD from CL.作者: iteracom 时间: 2011-7-13 16:19
If ur calculating FCFF = + preferred div
FCFE = - Preferred dividend
however if your starting from FCFF , FCFE = - 2(preferred div)作者: busterbluth 时间: 2011-7-13 16:19
^^ and remember there is no tax benefit on preferred dividends...作者: yodacaia 时间: 2011-7-13 16:19
rambda....
im a little confused by your signs....
shouldnt it be Beg NPPE -Dep + FCInv -(Proceeds of sales - BV assets sold) = Ending NPPE?作者: genuinecfa 时间: 2011-7-13 16:19
Spanishek -- I buy that. It's a bit counter-intuitive when you distribute the negative (how does adding book value sold contribute to Net PPE), but when I reason this out I think the formula stated above works作者: RMontgomery 时间: 2011-7-13 16:19
hm could be. Who knows. I pray they just give us GPPE and that it. Please. Please.
Good luck作者: scarecrow 时间: 2011-7-13 16:19
I doubt if depreciation belongs in FCInv, because when calculating FCFF you add in NCC explicitly.
FCInv = Net PPE (t) - Net PPE (t - 1) + Depreciation (t) ???作者: tobeornottobe 时间: 2011-7-13 16:19
You add Depreciation back explicitly to NI (or EBIT, EBITDA, etc) to account for the TAX benefit. So the net effect of adding back Depreciation is always = (tax)(Depreciation)
You still need to add it in your FCInv (IF you are given Net PPE) otherwise you understate how much you spent on PPE.
janardhanc Wrote:
-------------------------------------------------------
> I doubt if depreciation belongs in FCInv, because
> when calculating FCFF you add in NCC explicitly.
>
> FCInv = Net PPE (t) - Net PPE (t - 1) +
> Depreciation (t) ???
Edited 1 time(s). Last edit at Thursday, June 2, 2011 at 11:17AM by tiredofstudying.作者: 19831985 时间: 2011-7-13 16:19
I have in my notes that you should be adding the value of non-operating assets (e.g. land held for investment) to the value obtained in a FCF model. So, for example, if using an FCFF model, you should take the firm value per share subtract out total debt to obtain equity value per share then add non-operating assets to arrive at an equity value per share.
Can anyone confirm this??作者: ningning1984 时间: 2011-7-13 16:19
OnToTheNextOne, I agree. Another grand twist.作者: BelalM 时间: 2011-7-13 16:19
^^^ Yup, you are right. I realized that after I wrote the behemoth original post. So watch out for:
Land Held for Investment
Investments
Excess Cash
Pension Fund Surplus
I think the only way this will come up is if they sneak a line item onto the BS that says "Non-Operating Assets" --- then you know, after you are done using FCFF or FCFE to value the firm, you have to add these non-operating assets to get the TOTAL value of the firm.
Intuitively it makes sense -- FCFF and FCFE are valuing the firm based on assets that produce cash flows (operating assets). So add back non-operating assets for total value.
Edited 1 time(s). Last edit at Thursday, June 2, 2011 at 03:05PM by tiredofstudying.作者: madaochenggong 时间: 2011-7-13 16:19
this deserves a bump up. great post, thanks for sharing, tiredofstudying.作者: yospaghetti 时间: 2011-7-13 16:19
Great post!
I am not sure if the below three items are NCCs. Shouldnt they be reported in I/S and / or B/S?
Unrealized Gains or Losses on HFT Instruments => reported in I/S
Inventory Write Downs => loss added to COGS, WD subtracted from inventory
Asset Impairments => I/S and B/S作者: kickthatcfa 时间: 2011-7-13 16:19
All NCCs are going to pop out on the cash flow statement. This statement is your friend -- go there first.
- Inventory mark-downs may not show up separately on the cash flow statement, but the net change in inventory will (and that's all you care about).
- Unrealized gains/losses on HFT securities and impairments will be readily apparent on the cash flow statement and quite possibly the income statement.
Keep an eye on the footnote disclosures. There might be some critical piece of information there.
madamesoleil Wrote:
-------------------------------------------------------
> Great post!
>
> I am not sure if the below three items are NCCs.
> Shouldnt they be reported in I/S and / or B/S?
>
> Unrealized Gains or Losses on HFT Instruments =>
> reported in I/S
> Inventory Write Downs => loss added to COGS, WD
> subtracted from inventory
> Asset Impairments => I/S and B/S
