How to include rights issue in a DCF?
Hi everyone,
I'm trying my best to understand how to a future issuing of shares will impact a DCF -model?
Let's say the issuing brings in 100 MUSD, where do I put this number in the calculations?
The timing for the issue will be 3 years into the future from now.
Thanks a lot,
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The share issuance alone will not impact the DCF model, what impacts the DCF model is what the company chooses to do with the raised capital (which impacts the projection and cash flow).
Recall that FCFF = EBIT(1-t) + D&A - CAPEX - Net change in WC
FCFF is only impacted by cash flow from operating activities as well as CAPEX, it is not impacted by cash flow from financing activities. So if the company doesn't do anything with the raised capital, FCFF will not change and EV will stay the same.
In addition, recall that EV = market value of equity + market value of debt - cash
Market cap will increase due to the share issuance but the increase in cash will offset that, hence EV will not change.
But of course the share issuance will impact your 3 financial statements - increase in equity, increase in cash, increase in cash flow from financing activities, but I'm sure you already knew that.
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