FCFE method

You will never be expected to follow the accounting standard layout - you can arrive at the figures any way you like.

Dear tutor, I have an additional question on FCFE, which is based on the question "International Enterprises" from December 2007. This question includes separate interest accrued and interest paid (and Income tax as well). As per the answer, the FCFE are found based on statement of cash flows, but I'd like to clarify the following point in order to achieve better understanding of FCFE concept. Please confirm whether my understanding of FCFE concept is correct. Thus, I use the following approach: 1) If question does not have separate figures for interest payments (or income tax), then I just use the usual formulas from the study text - either direct or indirect ; 2) However, if there are figures regarding interest and IT payments (such as "International Enertprises"), the formulas are as follows: Net Income (from P&L) - (which is based on accruals) Add-back Depreciation - as non-cash Add-back Interest Accrued - as non-cash Add-back Income Tax - as non-cash Less Interest paid (cash, net) Less Income tax paid (cash) Less CAPEX (cash) Less WC investment (cash) Less Net debt issued (cash) -> So, the key point is to add-back non-cash items including Interest and Income tax if relevant. ->Though, the relevant cash items are deducted afterwards alongside with CAPEX, loan repayments etc. Please clarify whether my understanding is correct. Thank you in advance. P.S. More than that: calculating the FCFE for the "Question International Enterprises" gives FCFE = 18,9 mln'$, which is less than 24 mln'$ for 5,1 mln'$ which is the WC adjustment :) Thus, my calculation gives precise FCFE which already includes the WC adjustment. The approach is quite different from the answer, tis longer, but is it still correct?

Your understanding is correct. Also calculating the FCFE for International Enterprises in the way that you write is fine.

Thank you very much :)

You are welcome :-)