C2
Free Cash Flow Bridge
Walk to free cash flow line by line from whichever figure you start with, and see all four routes reach the same answer.
Learning focus: FCFF belongs to everyone who funds the firm and FCFE to shareholders, and the difference between them is what goes to and comes from lenders.
Case file
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The walk
FCFF
$194.4m
FCFE
$207.8m
Tax rate
24.00%
Working capital investment
$24.7m
All four routes agree
Yes
From start to FCFE
Line by line
| $m | Amount |
|---|---|
| Net income | 253.9 |
| Add depreciation | 110.7 |
| Add after-tax interest | 31.6 |
| Less capex | −177.1 |
| Less working capital investment | −24.7 |
| FCFF | 194.4 |
| Less after-tax interest | −31.6 |
| Add net borrowing | 45.0 |
| FCFE | 207.8 |