What are the differences between the following two formulas:
1. FCFE = NI + NCC - FCInv - WCInv + net borrowing
2. FCFE = NI - [(1 - DR) x (FCInv - Dep)] - [(1 - DR) x WCInv], where DR = target Debt-to-Asset ratio
From my understanding these are what I can pick out:
a) Formula #2 takes into account only the equity portion of FCInv and WCInv since the forecast only pertains to free cash flow to equity
b) In formula #2, 'NCC' (as stated in formula #1) is not relevant since non-cash charges would not have been taken into account as part of NI?
c) In formula #2, 'net borrowing' is not taken into account since debt is not part of the equity forecast
Questions:
A. Are the above statements correct?
B. Why doesn't formula #1 cater for only the equity portion of FCInv and WCInv (similar to formula #2)? |