#Free cash flow example pdf#
#Free cash flow example free#

What is the free cash flow to the firm under Choice #3 above? D. What is the free cash flow to the firm under Choice #2 above? C.

What is the free cash flow to the firm under Choice #1 above? B. The total cash flow of the firm differs for the four choices. Note: The practice problem gives the operating cash flow = 300, but the operating cash flow differs for the four choices. Choices #2, #3, and #4 are optional under IFRS: interest paid is an operating or a financing cash flow interest and dividends received are operating or investing cash flows and shareholder dividends paid are an operating or financing cash flow. Shareholder dividends paid = 25 We consider four choices for the classification of cash flows: Interest Paid Interest & Dividends Received Shareholder Dividends Paid #1 operating cash flow operating cash flow financing cash flow #2 financing cash flow operating cash flow financing cash flow #3 operating cash flow investing cash flow financing cash flow #4 operating cash flow operating cash flow operating cash flow Choice #1 is required by GAAP: interest paid is an operating cash flow interest and dividends received are operating cash flows and shareholder dividends paid are a financing cash flow.Net investments in fixed capital = 200.Operating cash flow (for the choice below) = 300.Part B: The free cash flow to equity = cash flow from operations – fixed capital investments + net borrowing (or – net debt repayment) = 330 – 120 + (70 – 60) = 220 Exercise 6.2: Free cash flow to the firm A firm has the following figures for 20X2: Question: Why don’t we subtract the shareholder dividends of 50? Answer: Shareholder dividends are part of the free cash flow to the firm.

Question: Why don’t we subtract the working capital expenditures of 44? Answer: The working capital expenditures were already subtracted from net income to derive the operating cash flow. Question: Why don’t we add the non-cash charges of 25? Answer: The non-cash charges were already added to net income to derive the operating cash flow. What is the free cash flow to equity? Part A: The free cash flow to the firm = cash flow from operations + interest paid × (1 – the tax rate) – fixed capital investments = 330 + 40 × (1 – 20%) – 120 = 242. What is the free cash flow to the firm? B. Non-cash charges (depreciation and amortization) = 25.

#Free cash flow example pdf#

FA Module 6: Free cash flow – practice problems (The attached PDF file has better formatting.) Exercise 6.1: Free cash flow to the firm and to equity A firm has the following figures for its GAAP financial statements: