FCFE from FCFF, NI, and CFO - how about EBITDA/EBIT?

CFA Level II Equities
#1

All,

When deriving the formulas for FCFF and FCFE, Schweser says that we can get to FCFF by adjustments to CFO, NI, EBIT, EBITDA. Then, to get to FCFE we can start from FCFF, NI or CFO. Why is it that they don’t say we can derive FCFE also from EBIT, or EBITDA? Is it just because we can find FCFF from EBITDA or EBITDA, and given that FCFE can be found from FCFF we are implictly assuming FCFE is also derivable from EBIT and EBITDA?

Or is there another reason?

Thanks!

#2

I can’t speak directly for Schweser of course, but since FCFF is derived along the path to FCFE from EBIT and EBITDA, they probably left it out for simplicity reasons. FCFF to FCFE is as simple as deducting after tax interest expense then adding net borrowing.

#3

You can get to FCFF or FCFE starting from NI, CFO, EBIT, or EBITDA.

That’s 8 formulae to remember.

Alternatively, you can get to FCFF starting from NI, CFO, EBIT, or EBITDA, and you can get to FCFE starting from FCFF.

That’s 5 formulae to remember.

I like 5 over 8.

#4

Exactly what I thought. Thanks!

#5

You’re welcome!