Free Cash Flow

Approach
Presented by: Maika Jens A. Dalit
 Free Cash Flows and their value
Free Cash Flow = EBIT (1- T) + Depreciation – CAPEX - NWC

cash flows that remain The cash-flow estimates of free cash

after we subtract from estimates should flows should include
expected revenues any be before any consideration of any
expected costs and the financial charges synergistic effects
investment.
Delta Company has the following information:
EBIT = $240,000, Tax Rate = 33.33% , Depreciation = $2400,
Capital Expenditure = $11,000, Increase in Net Working Capital = $6,500

Using the formula, we get the following result:

FCF = $240,000 * (1 – 0.3333) + $2,400 – $11,000 – $6,500

FCF = $240,000 * 0.6667 + $2,400 – $11,000 – $6,500

FCF = $160,000 + $2,400 – $11,000 – $6,500

FCF = $144,900.
 Should be converted to their cash
01
Noncash equivalent market value.

Payments and Should be converted to their

02 market value and subtracted from
Assumption of the cash-equivalent price

Liabilities Able to separate the investment

03 worth of an acquisition from the
way it is financed.
 Acquisition of Assets
as a collection of assets (generally fixed assets)
that the acquiring company needs.

Estimating Acquisition of Going concerns

They are then adjusted to reflect the expected

Cash Flows cash flows over the relevant time period

Acquisition is to be integrated into the acquiring

company

Acquisition cannot be evaluated as a separate

operation
 Looks at the incremental cash flows
Acquisition likely to be generated from the
acquisition.
analysis on a
the expected net cash flows have a
Free cash present value in excess of the
acquisition’s cost.
flow basis
Long term economic worth of an
acquisition.
 Thank you
for listening