CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows II
A company has cash flow from operations of 400, capital expenditures of 150, and dividends paid of 100. It also reports net borrowings of 60. Free cash flow to equity, using CFO minus capital expenditures plus net borrowing, is closest to:
Free cash flow to equity is 310. Subtract capital expenditures of 150 from operating cash flow of 400 to get 250, then add net borrowing of 60. Dividends are a distribution of FCFE and are not deducted in the calculation.
- A250
- B310Correct
- C460
Explanation
FCFE = 400 - 150 + 60 = 310. Dividends are a use of FCFE, not a deduction in its calculation. Using 250 ignores borrowing; 460 adds capex back instead of subtracting it.
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