Question

What's the FCFF of a company with total revenues of $200 million, gross profit margin of 60%, operating profit margin of 35%, net profit margin of 5%, tax rate of 30%, depreciation and amortization of $40 million, capital expenditures of $80 million, acquisition costs of $20 million and a decline in net working capital of $10 million?

Answer 1

FCFF = NOPAT(Refer NOTE) + depreciation and amortization(Non cash expenses) - capital expenditure + decline in net working capital -  acquisition cost

FCFF = $49 + $40 - $80 + $10 - $20

FCFF = (-) $1

NOTE - NOPAT Calculation:-

First of all calculate EBIT

EBIT is generally your Operating Profit which is often calculated as :-

Revenue - cost of goods sold - operating expenses

Operating Profit is 35% in this question

Therefore

EBIT =$200 x 35% = $70

Make EBIT post tax to get NOPAT(Net Operating Profit After tax)

NOPAT = $70(1 - 0.3) = $49

IMPORTANT NOTE -  Acquisition costs of $20 million is deducted Assuming that company is a serial acquirer and hence Acquisition cost should be treated like capital expenditure.