To calculate FCFF, do we net out the interest income and expense?
Or is it just interest expense that gets added back to NI to come to FCFF?
On a side note, interest income is cash flow available to equity holders only, right?
And how does interest income effect FCFF and FCFE?
Interest received should be included in both FCFF and FCFE. That’s not a problem under US GAAP as interest received is included in CFO. Under IFRS, however, interest received may be considered CFO or CFI. If it’s classified as CFI (and you start your FCFF or FCFE with CFO), you need to add interest received.
what if you start with NI, or EBIT or EBITDA?
Interest income should already be included in each of these.