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Calculating FCF

  • 14-03-2016 8:01pm
    #1
    mashavsl
    Registered Users, Registered Users 2 Posts: 4 ✭


    Hi. I am doing university project for 'Financial Management' module on Facebook.
    We calculated WACC and now doing FCF, but keep getting negative cashflow. Bloomberg and other resources say that cashflow is positive (about 6bln). We think our problem has something to do with huge working capital numbers.
    Can anyone who is good in finance suggest what are we doing wrong?


Comments

  • #2
    marizpan
    Registered Users, Registered Users 2 Posts: 443 ✭✭marizpan


    Can you give us the numbers to see where the calculation is going wrong


  • #3
    mashavsl
    Registered Users, Registered Users 2 Posts: 4 ✭mashavsl


    marizpan wrote: »
    Can you give us the numbers to see where the calculation is going wrong
    The formula we are using for FCF calculation is the following:
    Profit after tax + Depreciation - Investment in fixed assets - Investment in working capital

    Numbers are from FB accounts:
    3,797+1,945-3,665-7,481 = -5404

    Bloomberg and other sources says this number must be somewhere around 6 bln, but not negative 5.

    Thank you so much for your reply.


  • #4
    marizpan
    Registered Users, Registered Users 2 Posts: 443 ✭✭marizpan


    They may not be including the additional investment outflows?
    FCF would not be typically used for a company like this. It is investing/expanding rapidly so that usually produces a negative FCF.

    You don't mention a dividend payout or any new issue of shares?
    These should be factored in the calculation


  • #5
    mashavsl
    Registered Users, Registered Users 2 Posts: 4 ✭mashavsl


    marizpan wrote: »
    You don't mention a dividend payout or any new issue of shares?
    These should be factored in the calculation

    Thank you so much for your reply. We are really clueless about finance.
    Facebook has a zero-dividend policy... Does this change anything?
    We are worried that our calculations for "Investment in Working Capital" are wrong but arent sure why? How would one usually find this number?
    We used Current Assets- Current Liabilities as "working capital and measured the change from year to year- could this be found another way?

    Thanks so much!


  • #6
    TiGeR KiNgS
    Registered Users, Registered Users 2 Posts: 1,435 ✭✭✭TiGeR KiNgS


    Cash flow from operations - (CapEx only) = FCF see Facebook's cashflow stmt
    http://www.marketwatch.com/investing/stock/fb/financials/cash-flow

    8.6B - 2.52B = 6.1B
    per 2015 figures

    This is a good breakdown of FCF
    https://www.youtube.com/watch?v=W0Z_3ZDuvFI

    There is many different variations of FCF


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