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FCFE

This topic has 1 reply, 2 voices, and was last updated 10 years ago by John Moffat.

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May 27, 2015 at 12:02 am #249368
BrianH
Member
- Topics: 44
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Hi sir
Looking back over past exam solutions, I have not seen any examples where the actual formula for FCF To equity was needed (as per the bpp formula in their text book) to value equity.
It seems to be to case that the FCF formula (pbit less tax less CA less WC add depreciation) was used to calculate the value of the whole firm, and then the value of debt was subtracted. Would this method for calculating FCF to equity be applicable for most questions?
Thanks
May 27, 2015 at 8:33 am #249460
John Moffat
Keymaster
- Topics: 57
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What you call the ‘formula’ is an approximation to FCFE if we don’t have enough information to actually list all the cash flows.
If you have the cash flow information then you should use it (and not use the ‘formula’).
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