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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Free cash flow
Dear sir,
When we calculate the free cash flow to equity, we consider profit before tax and interest minus the tax minus capex plus depreciation (if depreciation was deducted to calculate obit). The resulting value gives us the free cash flow to equity. Correct?
Also we do not consider the finance charge or interest payment to conclude to free cash flow to equity, correct?
Could you tell me the logic behind the second statement if it is correct.
Thanks
No. The free cash flow to equity is after interest and tax – it is the amount available for dividends.
It is when looking at the free cash flow to the firm that we ignore the interest payments.