Session 8: Free Cash Flows to Firm and Equity

We continued our discussion of cash flows, by first putting to rest some final issues on earnings, including the tax rate to use in computing after-tax cash flows and dealing with money losing companies. In the process, we did look at what to do about accounting fraud, and while the answer is not much, there may be a role for forensic accounting. To be honest, most forensic accounting books are designed for valuation morticians, but here are a couple that you may find useful:
www.amazon.com/Financial-Shena...
www.amazon.com/Creative-Cash-F...
We then moved on to examine broad questions about what to include in capital expenditures and working capital, before putting the cash flow topic to rest by working out debt cash flows and cash flows to equity. If you are interested, you may find this post that I had on free cash flows useful (with Microsoft as my case study):
aswathdamodaran.blogspot.com/...
Start of the class test: www.stern.nyu.edu/~adamodar/p...
Slides: www.stern.nyu.edu/~adamodar/p...
Post class test: www.stern.nyu.edu/~adamodar/p...
Post class test solution: www.stern.nyu.edu/~adamodar/p...

[@armitageshanks2499]

One of the greatest unresolved mysteries of the Aswath multi-verse: Who is Jackie Wang? Is he the Thanos/ Kang the Conqueror of the Aswath Damodaran multi-verse?

[@rohitsarathy7080]

Lecture starts at 4:25.

[@seekingalpha_]

only 7k people got to touch this gold am im blessed to be one of them!

[@6toolbaseball]

12K now

[@quant-trader-010]

This is gold!

[@sumanthasaha61]

Hello Professor, I am valuing an Indian Private company about to go Public. I was calculating the country risk premium for the ERP, one of the methods you suggested was to adjust the default spread by (S.D. of Equity/ S.D. of Country bond). I am confused about how to calculate the deviation of T. Bond. Do I have to calculate the annualized S.D. of the Historical Yields or calculate S.D. from the returns of a bond Index?

[@bibekadhikari2298]

Professor why didn't we add back share based compensation to calculate FCFF or FCFE?

[@Suphanuthans]

On slide Dividend Vs FCFE 1.22 Hrs, I am just curious what it means when companies pay dividend + stock buyback more than the FCFE it generated?

[@seekingalpha_]

it typically means it is essentially returning cash to shareholders that it did not earn. Meaning, it is either using cash reserves, taking on debt, or using other sources of capital to fund the excess payments. Could be because the company has excess cash flow or wants to increase its stock price or its activist investors are just demanding more dividends or maybe because there are just no good investment opportunities found at the moment.