Different ways to calculate FCF?
Quick question, and I'm probably missing something stupid here, but I'm working through an example LBO that a friend sent me from one of his MBA courses.
Values are as follows:
EBITDA - 190
D&A - 30
EBIT - 160
CapEx - 29
Change NWC- -40
The model template calculates FCF like this: EBITDA - CapEx - Change NWC - Taxes; which gives 190 - 29 - 40 - 36 = 85. Then it subtracts interest of 69 to give cash available of 15.
This gives a different answer than the "standard" formula from interview guides of EBIT(1-t) + D&A - Change NWC - CapEx; 160 (1-.4) +30 - 40 - 29 = 57.
What's the best way to think about this? Thanks.
Tax rates are not the same on those two equations. Template has taxes at 36. Interview guide equation has taxes at 64 (160 * 40%).
What is the tax rate in the model and off what # is it calculated? model looks wrong to me unless it's assuming an unusually low tax rate for some reason.
Thanks for the responses.
Think I found the error, it is pretty dumb as I thought: in the equation it's supposed to be EBT(1-t), not EBIT(1-t), correct? The former gives the same answer as the template, 15, post interest expense.
Looks like the model just does things in a different order and takes out interest expense at the end (tax expense is calculated off of post-interest expense).
I need sleep. Thanks again.
edit - read quickly and didn't notice you mentioned interest expsne (but for some reason buried it after all the other relevant info was clearly listed)
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