Can anyone help me answer this question? I can think of 1-2 scenarios but cannot for the third. Preparing for an upcoming interview. I appreciate any help! Thanks.
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Very easy question, you need to brush up on technicals.
Look at the UFCF formula: EBIT * (1 - tax rate) + D&A - change in NWX - Capex. If EBIT is low/negative already, very possibly that UFCF ends up negative. Other two are if change in NWC or Capex are huge, UFCF ends up negative.
Let’s say you’re using a simplistic FCF substitute like CFO - Capex where CFO is Net Income + noncash expenses - change in NWC. If net income is low/negative, if change in NWC is huge or if Capex is huge.
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