Basic questions on a DCF analysis for a foreign company
Hi,
Two questions pertaining to a DCF analysis I'm doing on a foreign company.
I'm trying to understand the difference or similarity between what they call CFADS (cash flow available for debt service) and the unlevered free cash flow.
I know UFCF is EBIAT + Depreciation + Change in net working capital - Capex
They do a similar cash flow calculation which starts with EBIT, but in addition to Capex and change in NWC, they also have line items such as Disposals and an "Other" category. Should I include those in the UFCF calculation? I feel the answer is no but isn't the purpose to calculate the cash flow from operations, which Disposals would qualify? Feel like I'm missing something conceptually here
The second strange part of this is that the company has a very substantial depreciation expense, and they have a lot of losses that they can carry forward, so they haven't paid taxes for the past five years and don't project to pay any in the next three years.
Since they don't pay taxes, would I still need to tax affect EBIT to get to the EBIAT in calculating my UFCF, or would I just use EBIT? If I do need to tax effect - what should I use as the rate given I can't back into it with the info I have?
1) gain or loss from disposal is a non-cash item so subtract the gain or add back the loss to get cash from operations
2) no need to tax effect if pre-tax earnings are negative
Thanks for the response.
If you dont mind a follow up to response #1:
Just to clarify - I'd be doing essentially the same calculation the company is doing to calc their CFADS (EBIT + depreciation - net change in working cap +disposals - Capex).
Does that mean the the only difference between the CFADS and cash from operations is the interest expense in the latter?
Both CFADS and OCF should be before any interest payments.
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