- This topic has 8 replies, 2 voices, and was last updated 10 years ago by
.
- Posts
Hello,
I came across a question. The Net Cash inflow from operating activities is $210m, interest paid is $4m, interest received $12m, interest paid on finance leases $6.5m, taxation $4.1m, capital expenditure $120.2m, decrease in short term deposit $35.5m, repayment of secured loans $31.0m all items were considered to get our FCFE except decrease in short term deposit and repayment of secured loan to arrive at FCFE.
My question is, is it allowed to follow this syntax knowing fully that they ought to be considered.
Thanks.
You are going to have to tell me which exam question this was (because I am not really sure what you are asking when you write ‘is it allowed to follow this syntax’.)
P4. I thought we are to deduct repayment of loan (financing activities) and add decrease in short term loan (it falls under working capital) but these were not considered. Maybe I ought to say formula.
What was done was:
Net operating activities 210
Interest paid. (4)
Interest received. 12
Interest paid on lease. (6.5)
Taxation. (4.1)
Capital expenditure. (120.2)But loan repayment and decrease in short term were not considered. I believed loan repayments should be deducted while decrease in short term investment be added to get FCFE.
You are still going to have to tell me which question you are asking me about!
Can free cash flow to equity be calculated without considering loan repayment and increase/decrease in working capital (short term loan to be specific)?
It depends when the repayment is, and whether a new loan is being taken to replace the old loan. In most questions where it has been relevant it has been part of a restructuring and therefore the repayment has not been relevant for the future flows.
Increase/decrease in working capital is relevant (but in a question it depends whether you are given the operating profit itself or the cash flow from operating activities (in the latter case, the working capital will already have been adjusted for.
- You must be logged in to reply to this topic.