DCF Decode

🧾 How to Calculate Free Cash Flow (FCF) Using EBIT(1–t) Approach – CFA-Level Explanation 📌 What Is Free Cash Flow? Free Cash Flow (FCF) represents the cash a business generates after accounting for the reinvestment in working capital and fixed assets (CapEx). It’s a key indicator of a firm’s ability to create shareholder value. This method calculates Unlevered Free Cash Flow , which ignores the effects of debt (interest payments), making it ideal for valuation purposes like DCF where capital structure neutrality is important. 🔢 Formula: FCF from EBIT(1–t) {FCF} = {EBIT}(1 - t) + {Depreciation & Amortization} - {Change in Working Capital} - {Capital Expenditure} Let’s break it down line by line, as shown in your image: 1. Revenue While not directly used in the FCF formula, Revenue is the starting point in financial modeling. It's used to project future EBIT (Earnings Before Interest and Taxes) via margin assumptions. 2. EBIT × (1 - t) EBIT represents the ope...

  Understanding Free Cash Flow (FCF) Calculation: A Detailed Explanation for CFA-Level Insights Free Cash Flow (FCF) is a critical financial metric for investors and analysts, as it represents the cash that a company generates after accounting for capital expenditures (CapEx) needed to maintain or expand its asset base. For investors, FCF serves as an important indicator of a company's financial health, profitability, and its ability to generate cash for growth, dividends, or debt repayment. In this article, we will explain the calculation of Free Cash Flow (FCF) with a focus on key components, adjustments, and interpretation, as a CFA Level 1 or Level 2 candidate would approach the topic. 1. Understanding the Core Components of Free Cash Flow To calculate FCF, one must understand the key components involved: Operating Cash Flow (OCF) : This is the cash generated from the company’s core business activities. It is typically found on the company’s Cash Flow Statement under ...

📘 Building a DCF Valuation Model for Polycab India Ltd. in Excel – A Detailed Guide 🎯 Objective To estimate the intrinsic value of Polycab India Ltd. using the Discounted Cash Flow (DCF) methodology , a cornerstone of equity valuation under the CFA curriculum (Level I-III) . We will construct the model in Microsoft Excel , using publicly available data from Screener.in , Annual Reports , and NSE . 🏗️ DCF Valuation Framework DCF valuation is based on the principle that a stock’s fair value is the present value of its future expected free cash flows (FCFs) discounted at an appropriate rate of return (cost of capital). Intrinsic Value (Equity) = PV of Forecasted FCFs + PV of Terminal Value – Net Debt (if using FCFF) In this case, we will use Free Cash Flow to Firm (FCFF) and value equity per share by dividing by outstanding shares. 🧮 Step-by-Step Model Construction for Polycab India Ltd 📝 Step 1: Gather and Validate Key Financial Data Input ...