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Financial Statement AnalysisModule 5 of 9

Analyzing Statements of Cash Flows II

3

Concepts

5

Formulas

1

Decisions

2

Quiz Questions

Key Concepts

3 concepts covered in this module.

Free Cash Flow to Firm (FCFF)

Cash available to ALL capital providers (debt + equity). FCFF = CFO + Int(1-t) - FCInv.

Free Cash Flow to Equity (FCFE)

Cash available to equity holders. FCFE = CFO - FCInv + Net borrowing.

Cash Flow Ratios

Cash flow adequacy, reinvestment, debt coverage, interest coverage from cash flows.

Formulas

5 essential formulas for this module.

FCFF from CFO

FCFF = CFO + Int×(1-t) - FCInv

Where: FCInv = capital expenditures (net)

FCFF from NI

FCFF = NI + Dep + Int(1-t) - FCInv - WCInv

Where: WCInv = increase in working capital

FCFE

FCFE = CFO - FCInv + Net Borrowing

Where: Cash available to equity after investment and debt

Cash Flow to Revenue

CF/Revenue = CFO / Net Revenue

Where: Cash-generating ability per dollar of revenue

Debt Coverage Ratio

Debt Coverage = CFO / Total Debt

Where: Ability to repay debt from operations

Decision Frameworks

1 decision frameworks to guide your analysis.

FCFF vs FCFE?

  • FCFF: for firm valuation (WACC-based DCF)
  • FCFE: for equity valuation (cost of equity-based DCF)

Mind Map

Visual overview of how concepts connect in this module.

Cash Flow Analysis II
FCFF
CFO + Int(1-t) - FCInv
For firm valuation
Available to all providers
FCFE
CFO - FCInv + Net borrowing
For equity valuation
Available to equity holders
Cash Flow Ratios
CF to revenue
Debt coverage
Reinvestment ratio
Interest coverage

Study Analyzing Statements of Cash Flows II

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Analyzing Statements of Cash Flows I

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Analysis of Inventories