Financial Management |Course hero helper
Posted: February 27th, 2023
Please give me the following answers:
1) Calculate the FCF with step by step formulas
2) Financial ratio analysis: liquidity ratios, asset management ratios, debt management ratios, profitability ratios, etc.
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3) Estimated required return on the company’s stock by using the capital asset pricing model (CAPM).
4) Stock valuation. Use one of the following valuation models:
FCF valuation model with a constant growth rate on FCF.
FCF valuation model with non-constant growth
Dividend valuation model with constantly growing dividend
Dividend valuation model with non-constantly growing dividend
SOLUTION
- To calculate the Free Cash Flow (FCF), follow these steps:
- Determine the company’s operating cash flow (OCF) by subtracting operating expenses from operating revenues.
- Subtract capital expenditures (CapEx) from OCF to get the unlevered free cash flow (UFCF).
- Add back the interest expense (net of tax) to UFCF to get the levered free cash flow (FCF).
The formula for FCF is: FCF = OCF – CapEx + (Interest expense × (1 – Tax rate))
- Financial ratio analysis:
- Liquidity ratios: Current ratio, Quick ratio
- Asset management ratios: Inventory turnover ratio, Accounts receivable turnover ratio, Total asset turnover ratio
- Debt management ratios: Debt-to-equity ratio, Debt-to-total assets ratio, Interest coverage ratio
- Profitability ratios: Gross profit margin, Net profit margin, Return on assets (ROA), Return on equity (ROE)
- To estimate the
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