A recent job applicant made some interesting comments about FCFE and FCFF: I dont like the definitions

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A recent job applicant made some interesting comments about FCFE and FCFF: “I don’t like the definitions for FCFE and FCFF because they are unnecessarily complicated and confusing. The best measure of FCFE, the funds available to pay dividends, is simply net income. You take the net income number straight from the income statement and don’t need to make any further adjustments. Similarly, the best measure of FCFF, the funds available to the company’s suppliers of capital, is EBITDA. You can take EBITDA straight from the income statement, and you don’t need to consider using anything else.”

How would you respond to the job applicant’s definition of 1) FCFE and 2) FCFF?

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Related Book For  book-img-for-question

Equity Asset Valuation

ISBN: 9781119850519

3rd Edition

Authors: Jerald E Pinto, CFA Institute

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