Normalized vs Reported FCFE

Hi,

If we are given both reported FCFE as well as Normalized FCFE, in which scenarios should I use either of them.

Thanks for your response.

Let me draft a question for you.

Excerpt from vignette. “John Smith believes reported FCFE should be normalized and calculates the normalized FCFE to be X”

Q5. Using John Smith’s approach the intrinsic value of the stock is…

I am hoping that will be explicitly mentioned.

Considering the fact that this time we will be facing item set questions, there is plenty of room for adding such details.

So, I am guessing we wont run into issues relating to the clarity of questions being asked.

That is one advantage of Level 1 over Level 2 wink

Usually normailized. Since you should be using the FCFF in projections, where it is assumed to be normalized, bar known extraordinary flows.

I was solvinng a question where it was mentioned that the valuation was for acquiring the firm due to which normalized FCFE was used. Was just wondering if that is the only scenario when normalized should be used ( assuming the question does not specifically states whether to use normalized or not).

FCFE can be distorted one year due to extraordinary events, so it is not the “core” FCFE and must be adjusted for projections and valuation.

Some vignettes give the FCFE or FCFF and don’t specify if they are normalized. You must assume that no extraordinary events occured, so you can use them in valuation.