Comments (5)

Sep 4, 2017

I do not think it is true because FCF is closer to Operating Income or NOPAT than net income.

Sep 4, 2017

Of course it's true, but in the long-run, a lot of things are true. I guess more context is needed. Maybe this manager has a long-only and mature company approach.

Sep 16, 2017

well free cash flow = net income + depreciation +/- change in working capital - capex

what he is saying is essentially in the long run

  1. CAPEX = Depreciation, which is true, when your company declines and ends, you will fully depreciate your pp&e,, which you built up through capex
  2. Working capital fluctuation will end up equaling 0, which is true because you will liquidate all your accounts receivables and inventory and pay back all your accrued expenses and settle all your accrued expenses when your company ends

so you have free cash flow = net income +/- change In working capital, which equals 0 in the long run (+ depreciation - capex, which equals 0 in the long run)

so FCF = net income

-

    • 1
Sep 17, 2017

FCF to the firm calculation starts with after-tax EBIT though, so just to clarify what you're equating is FCF to Equity by starting with net income and thus incorporating interest payments.

Sep 16, 2017
Comment

-