FCF Valuation Flashcards
What is FCF? Advantage
This is alternative to ECF and indirect method for calculating P.
which basically valuing entire firm V and subtract the Net debt
The advantage is in case the leverage is expected to change significantly over time, the FCF will save huge time and effort for this change to be taken accounted
What does ECF measure?
What a firm can afford to pay out as a dividend not necessarily what is actually paid out
This method is often used fe private equity situation
In terminal years value what happens with net Capex change? (Bludgeon approach)
It is 0 because it is assumed that Capex offset depreciation hence 0 implying it is a stable stage
What should you carefully look when estimation FCFs ?
The growth rate of line items such as:
EBIT growth rate
Capex (including depr) growth rate - is it 0 when arrived at stable stage
NWC growth rate
