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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Free Cash flow to equity
When I sat F9 in Sept 2017, I don’t think you talk about free cash flow to equity.
Can you explain what this concept is all about please? Is is the same thing as npv cashflows and discounting?
It was not in the syllabus for Paper F9 – that is why I didn’t mention it 🙂
It is covered in our free Paper P4 lecture notes. The free cash flow to equity is the cash flows each year available for equity – so the normal cash flows that you would use for NPV calculations, but less any debt interest (and adjusted for any debt paid or repaid). We discount the free cash flows to equity at the cost of equity in order to get the total value of equity when we are valuing a business.
Do look at the chapter in the lecture notes where this is explained, with examples.