7.7 EBIT Form of FCFF
Free Cash Flows can be computed in a variety of equivalent ways. One way is directly from the Non US GAAP number Earnings Before Interest and Taxes (EBIT). For this method the following notation is again used:
Calculating FCFF from EBIT
EBIT is related to cash flows from operations (CFO), as measured under US GAAP, as follows:
Substituting into FCFF and cancelling out the Interest*(1 – Tax Rate) terms we get:
CAPEX can be computed directly from the Investing Activities section of the Cash Flow Statement or it can be computed indirectly by reconciling the change in real assets for the period in terms of Depreciation expense and CAPEX such that, CAPEX equals change in real assets plus Depreciation.