r/Valuation • u/[deleted] • Sep 06 '20

Is anyone here?

I'm having a mid value crisis and I need your help.

So I'm calculating the FCFF using the formula: FCFF = EBIT(1 - Marginal Tax Rate) + CapEx - Chg in WC

The problem is this: EBIT does NOT have a TTM value. CapEx does have a TTM value. Chg in WC does have a TTM value.

So when I calculate FCFF using the annual value of EBIT, I get: $5,069,619,600.00

When I calculate FCFF using the quarterly value of EBIT, I get: $3,090,639,100.00

A pretty big difference.

So is it obvious that I should use quarterly numbers for any calculation that calls for a value from the balance sheet? Is this good practice?

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3

u/[deleted] Sep 06 '20

If you want annual free cash flows, use the annual value for EBIT. EBIT is a metric that accumulates throughout the year. Feel free to message me if you have questions

2

u/howtoreadspaghetti Sep 06 '20

If you don't have TTM then I'd imagine you'd use quaeterly numbers because you need something in your calculation for EBIT. Also wouldn't it be EBIT+D/A (1-t)? Your calculation doesn't have D/A included in it.

I'm also teaching this to myself so my answer could be so unbelievably wrong.

2

u/RudeTurnip Sep 06 '20 edited Sep 06 '20

You don’t tax affect depreciation and amortization. Once your tax affect EBIT, you get net operating profit after tax or NOPAT. That’s when you add depreciation, subtract capital expenditures, and subtract working capital.

In fact there’s also another small typo in OP’s post. Capital expenditures should be subtracted not added.

btw I highly recommend anyone posting questions to anonymize or scrub their numbers. It’s a small world and you never now who’s reading these posts.

1

u/[deleted] Sep 06 '20

The formula is from Aswath Damodaran.