Question

How do I find the cash flows from the firm?

How do I find the cash flows from the firm?

Homework Answers

Answer #1

Cash Flows from the Firm is the cash flow generated by Firm during a certain period and available to all Investor's of the Firm i.e. Debt holder , Preferred Stock holder and Common Stock Holder.

There are various method to calculate the Cash flows from the Firm and most common method is provided below.

EBIT XXX
Less : Tax (XXX)
EAT XXX
Add : Depreciation (Non-Cash Expenditure) XXX
Less: Change in Working Capital (XXX)
Less : Capital Expenditure (XXX)
Cash Flow From the Firm XXX

We can also use following formula to calculate the Cash Flows from the Firm

Cash Flow from the Firm = EBIT(1-t)+Depreciation and amortization(Non-cash) - Change in working Capital - Capital Expenditure.

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