FCFE

[A_KB]

So…FCFE=CFO-FCInv+ Net Borrowing (as per US GAAP)
Now suppose… Intt paid is shown as Financing activity (IFRS)…Do I need to substract the Intt(1-t) from CFO while calculating FCFE?
Schweser states that if dividens paid are showns as operating than you need to adjust i.e add the same in CFO. thanks

 

[Oscar]

A_KB wrote:
So…FCFE=CFO-FCInv+ Net Borrowing (as per US GAAP)
Now suppose… Intt paid is shown as Financing activity (IFRS)…Do I need to substract the Intt(1-t) from CFO while calculating FCFE?
Schweser states that if dividens paid are showns as operating than you need to adjust i.e add the same in CFO. thanks

No, interest paid is already deducted in net income (for both, IFRS and US GAAP). Common dividends are not relevant in calculating FCFE, means they should not be deducted. Hence, no adjustments for dividends are necessary, unless they are not preferred dividends.
Regards,
Oscar

 

[A_KB]

Pg. 128 of Schweser material states ” if the firms following IFRS have substracted dividens paid in calculating CFO, dividends must be added back when calculating FCFE”. I get this, as we are calculating free cash flow to equity (which also includes preference holders).
I hope these adjustments and those pension (US GAAP vis a vis IFRS ) things are not tested.
Thnks

 

[Oscar]

Ok, you’re right: If you start from CFO then you need to add them back eventually under IFRS, whereas if you start from net income no adjustment for dividends is needed under both standards.