CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows II
A company reports net income of 120, depreciation of 40, a 15 increase in working capital, fixed capital investment of 70, and net borrowing of 25. Free cash flow to equity is closest to:
FCFE is 100. Start with net income of 120, add back depreciation of 40, subtract the working capital increase of 15 and fixed capital investment of 70, then add net borrowing of 25, giving 100.
- A60
- B100Correct
- C120
Explanation
FCFE = NI + depreciation - increase in working capital - FCInv + net borrowing = 120 + 40 - 15 - 70 + 25 = 100. Omitting net borrowing gives 75, and ignoring the working capital and borrowing adjustments gives other wrong values; the keyed result is 100.
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