Corporate Finance
What is FCF (Free Cash Flow) and why is it important ?
FCF (Free Cash Flow) represents the money put aside/ left over after covering its operating expenses in the business.
It shows how much cash is available to finance new projects without needing external funding.
What is the conclusion for FCF ?
• If FCF is high: the company can finance new projects internally.
• if FCF is low: the company might need help either by investing the capital via loans or equity financing.
What is NPV ?
Net Present Value (NPV) tells if the project is worth investing in based on future returns.
What is the conclusion for the NPV ?
• If NPV is high: the project is expected to create value.
• If NPV is low: the project destroys the value (better avoid it).
• If NPV = 0: the project breaks even.
What is ANPV ?
ANPV (Adjusted Net Present Value) is the adjusted value to finance new projects.
NB: If the NPV is low, then we use this formula.
However, if the NPV is high, the ANPV is optional.
What is NOPAT ?
NOPAT stands for Net Operating Profit After Tax and it is a financial measurement tool that shows how well a company performed through its core operations.
What is the formula for NOPAT ?
NOPAT = EBIT x (1- Tax Rate)
What is the cost of capital ?
It's the cost of ressources used to finance a firm's investment projects.
cost of equity ?
cost of equity represents the return that shareholders expect for investing in a company.
What is the CAPM used for?
The CAPM is used for calculating the return expected by shareholders based on market risks.
What is the WACC ?
The WACC is used for calculating the company's overall capital, considering both debt and equity financing.
What is NWC (Net Working Capital) ?
It's the difference between a company's current assets (net of cash) and current liabilities (net of debt) on its balance sheet.
What is CapeEx ?
CapEx is the money invested by a company to acquire or upgrade fixed, physical or nonconsumable assets.