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Hi everyone,
In Nente co (jun 12) question we need to calculate current value of Nente Co share using the free cash flow to firm methodology.
Equity value is calculated as company value minus debt. Only non current liabilities are included in debt in amount of 6.500k$? Based on that, equity value is 13.471k$ – 6.500k$ = 6.971k$.
Why didn’t we include current liabilities in amount of 1.890k$ in debt?
ThxFree cash flow gives the value of the business, which is the long term capital i.e. equity + non-current liabilities (which is always equal to total assets less current liabilities).
Therefore the value of equity is the value of the business less the non-current liabilities.
Thank you John.
I could not find that clear explanation in Study text.
It is logical because we include current liabilities in FCF analysis with WC injections estimation.
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