FCFF & FCFE always start at NI or NI after taxes?

CFA Level II
#1

FCFF = NI + NCC - FCInv - WCInv + Int (1-t) FCFE = NI + NCC - FCInv - WCInv + Net Borrowing Are these equations correct? Does NI always mean NI before taxes: they’ll always confuse us by giving us both NI and NI after taxes or a tax rate. I want to be clear that the figure I pick for NI in the equations above is NI (before taxes) which is the traditional definition of NI. Jay.

#2

it is the Net Income - last line of your income statement => AFTER Taxes.

#3

“I pick for NI in the equations above is NI (before taxes) which is the traditional definition of NI.” Thanks for the laugh, needed that.

#4

NI = NET INCOME, which is ALWAYS after TAX! I think you’re confusing NI with EBIT or EBITDA or NOPLAT (which is the same as EBIT(1-T)). You should be able to get to FCFF or FCFE from ANY of the income measures (EBIT, EBITDA, NOPLAT, NET INCOME, ETC). Here is the list: FCFF from NI FCFF from EBIT FCFF from EBITDA FCFF from CFO FCFF from My Mom’s Paycheck FCFE from FCFF FCFE from NI FCFE from CFO FCFE with Target Debt-to-Equity Ratio FCFE from YOUR Mom’s Paycheck

#5

So it’s always NI after taxes? I know…I feel stupid…!!

#6

Yes, net income is always after tax. Its the last thing you typically see on the income statement. The order typically goes: EBITDA - Depreciation/Amortization EBIT -Interest (might be net interest) EBT -Taxes Net Income

#7

Technically, the NI is “Net income from continuing operation”. If both NI and NICO are given on the exam, use NICO.

#8

skillionaire Wrote: ------------------------------------------------------- > “I pick for NI in the equations above is NI > (before taxes) which is the traditional definition > of NI.” > > Thanks for the laugh, needed that. easy does it sk…but yah that was worth a chuckle

#9

eltia Wrote: ------------------------------------------------------- > Technically, the NI is “Net income from continuing > operation”. If both NI and NICO are given on the > exam, use NICO. Good point eltia - there might be some after tax bull$hit after the NI line, but i hope to god we don’t see that.!!!

#10

“easy does it sk…but yah that was worth a chuckle” It was just said so matter-of-factly; I had to laugh.

#11

“Net”. That should answer your question.