Talk:Free cash flow/Archives/2014

Interest Inconsistency?
It seems like the two methods of determining free cash flow are not entirely consistent in the article. The first method presented shows that "Free Cash Flow = Net Income + Interest + Dep/Amort - Changes in Working Capital - Capex". The second method uses "Free Cash Flow = Cash Flow from Operations - Capex", where "Cash Flow from Operations = Net Income + Dep/Amort - Changes in Working Capital". Thus, the implication with the second method is that Free Cash Flow = Net Income + Dep/Amort - Changes in Working Capital - Capex. The second method makes no mention of "interest" whereas the first method does. Why is this so? It seems like an inconsistency. Could somebody clarify/correct this? —Preceding unsigned comment added by 128.97.179.16 (talk) 06:40, 1 April 2010 (UTC)

Consider the following: FCF=EBIT(1-T) assume capex+dNOWC=0, all financing is debt.

tax	40%

Case 1 EBIT=10 Int expense=10 EBT=0 Tax=0 NI=0 FCF=6

Case 2 EBIT=20 Int expense=10 EBT=10 Tax=4 NI=6 FCF=12

FCF=EBIT(1-T) assume capex+dNOWC=0, all financing is debt.

I am not sure how the FCF adds up to 6 but the investors get 10 in case #1, and likewise the FCF adds up to 12 and the investors get 10 and the owners get 4. Does the FCF take tax paid by each investor into consideration?


 * Yep, it's wrong. FCFF = CFO + Int(1-t) - Capex (see for example, CFA material, or any other accounting book).

Someone whould fix this, I don't know how to do it. — Preceding unsigned comment added by 209.133.7.250 (talk) 22:45, 8 January 2014 (UTC)