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M&A

Free Cash Flow (FCF) Modeling

Steve Literati

One of the primary functions of a broker-dealer’s M&A; desk is advisory services – consulting clients as they seek to grow through M&A.;

In this course, you will learn to use the Free Cash Flow metric to evaluate acquisition opportunities. You will learn about the components of Free Cash Flow and its relationship with market value. You will also learn about the process of capital budgeting and guidelines to follow.

This course is part of the New York Institute of Finance’s popular Mergers & Acquisitions Professional Certificate program.

One of the primary functions of a broker-dealer’s M&A; desk is advisory services – consulting clients as they seek to grow through M&A.;

This course is part of the New York Institute of Finance’s popular Mergers & Acquisitions Professional Certificate program.

What you'll learn

Identify Free Cash Flow from Accounting Data
Recognize how to compare Free Cash Flow to Net Income
Recognize the Drivers of Free Cash Flow
Identify the steps to calculate Cost of Capital
Identify the steps to use Free Cash Flow for Capital Budgeting Decisions
Recognize the relationship between Free Cash Flow and Economic Value Added Value Acquisitions using Free Cash Flow
Recognize how to develop a Free Cash Flow approach to Incentive Compensation

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What's inside

Learning objectives

Identify free cash flow from accounting data
Recognize how to compare free cash flow to net income
Recognize the drivers of free cash flow
Identify the steps to calculate cost of capital

Identify the steps to use free cash flow for capital budgeting decisions
Recognize the relationship between free cash flow and economic value added value acquisitions using free cash flow
Recognize how to develop a free cash flow approach to incentive compensation

Identify free cash flow from accounting data
Recognize how to compare free cash flow to net income
Recognize the drivers of free cash flow
Identify the steps to calculate cost of capital
Identify the steps to use free cash flow for capital budgeting decisions
Recognize the relationship between free cash flow and economic value added value acquisitions using free cash flow
Recognize how to develop a free cash flow approach to incentive compensation

Syllabus

Session 1: Introduction to Free Cash Flow and the Objective of the Firm

Lesson 1: Need for Free Cash Flow

Lesson 2: Understanding Free Cash Flow

Lesson 3: Relationship between Free Cash Flow and Market Value

Lesson 4: Return on Investment

Lesson 5: Adjusting Accounting Data to Get to Free Cash Flow

Lesson 6: Components of Free Cash Flow

Lesson 7: Show Me

Lesson 8: Adjustments to Net Investment

Class Exercise

Session 2: Components of Free Cash Flow

Lesson 1: Focus on Free Cash Flow

Lesson 2: Understanding the Components of Free Cash Flow

Session 3: Cost of Capital

Lesson 1: Understanding Cost of Capital

Lesson 2: CAPM & WACC

Session 4: Capital Budgeting Using Free Cash Flow

Lesson 1: Capital Budgeting: Overview

Lesson 2: Guidelines for Capital Budgeting

Lesson 3: Q&A

Lesson 4: Caveats

Session 5: Modified Free Cash Flow

Free Cash Flow and Interim Financial Results

Session 6: Using Free Cash Flow to Evaluate Acquisition Opportunities

Lesson 1: Overview

Lesson 2: Acquisition Analysis

Lesson 3: Objective to add Shareholder Value

Lesson 4: Synergies and Integration Costs

Lesson 5: Q&A

Lesson 6: Other Metrics

Class Exercise

Lesson 7: Incentive Compensation

Session 7: Integration of Acquisitions

Lesson 1: Integration Best Practices

Lesson 2: Integration Planning

Session 8: Implementation Issues

Good to know

Know what's good

, what to watch for

, and possible dealbreakers

Explores Free Cash Flow, which is standard in investment banking

Teaches Free Cash Flow, which helps learners determine company valuation

Develops Free Cash Flow and Capital Budgeting, which are core skills for investment banking

Taught by Steve Literati, who is recognized for their work in investment banking

Examines Free Cash Flow, which is highly relevant to investment banking

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Activities

Be better prepared before your course. Deepen your understanding during and after it. Supplement your coursework and achieve mastery of the topics covered in M&A: Free Cash Flow (FCF) Modeling with these activities:

Review the fundamentals of corporate finance

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By reviewing the basic concepts of corporate finance, you will strengthen your understanding of the course material and be better prepared to apply it to real-world scenarios.

Browse courses on Corporate Finance

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Read through your old notes or textbooks on corporate finance.
Complete practice problems or quizzes to test your understanding.

Attend industry events or webinars on M&A

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By attending industry events or webinars on M&A, you will connect with professionals in the field, learn about current trends and best practices, and expand your knowledge beyond the classroom.

Browse courses on Mergers and Acquisitions

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Identify industry events or webinars related to M&A.
Register and attend the events or webinars.
Network with other attendees and speakers.

Use online resources to learn about capital budgeting techniques

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By exploring online resources on capital budgeting techniques, you will supplement the course material and gain practical insights into how these techniques are applied in real-world decision-making.

Browse courses on Capital Budgeting

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Search for online tutorials or articles on capital budgeting techniques.
Follow the instructions and examples provided in the resources.
Apply the techniques to practice problems or case studies.

Five other activities

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Calculate free cash flow using different methods

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By practicing calculating free cash flow using different methods, you will gain a deeper understanding of the concept and its applications in financial analysis and valuation.

Browse courses on Free Cash Flow

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Find a company's financial statements (income statement, balance sheet, and cash flow statement).
Apply different methods to calculate free cash flow, such as the direct method and the indirect method.
Compare the results obtained using different methods and analyze any discrepancies.

Help other students in the course or tutor them on M&A concepts

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By mentoring other students or tutoring them on M&A concepts, you will reinforce your understanding of the material, develop your communication and teaching skills, and build a network of connections within the course.

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Identify a student who needs help or is interested in learning about M&A.
Offer your help and schedule a time to meet.
Prepare materials and resources to assist the student.
Meet with the student and provide guidance, support, and feedback.

Develop a financial model to evaluate an acquisition opportunity

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By creating a financial model to evaluate an acquisition opportunity, you will apply the concepts learned in the course to a practical scenario and enhance your understanding of the decision-making process in M&A transactions.

Browse courses on Mergers and Acquisitions

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Gather financial data and assumptions about the target company.
Build a financial model to project the combined financial performance of the acquirer and target.
Analyze the financial projections and perform sensitivity analysis.
Write a report summarizing your findings and recommendations.

Volunteer at a non-profit organization involved in M&A or financial advisory

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By volunteering at a non-profit organization involved in M&A or financial advisory, you will gain hands-on experience in the field, apply your skills to real-world projects, and make a positive impact on your community.

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Identify a non-profit organization involved in M&A or financial advisory.
Contact the organization and inquire about volunteer opportunities.
Attend training or orientation provided by the organization.
Participate in projects or assignments related to M&A or financial advisory.

Contribute to an open-source project related to financial modeling or valuation

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By contributing to an open-source project related to financial modeling or valuation, you will apply your skills in a practical setting, enhance your understanding of industry tools, and connect with a global community of developers.

Browse courses on Open Source

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Identify an open-source project related to financial modeling or valuation.
Review the project's documentation and codebase.
Identify an area where you can contribute your skills.
Submit a pull request or issue to the project.

Career center

Learners who complete M&A: Free Cash Flow (FCF) Modeling will develop knowledge and skills that may be useful to these careers:

Financial Analyst

Financial Analysts help businesses and investors make informed decisions about financial matters. Those that want to succeed must first know how to come up with concrete financial models and make sound investment decisions, which can be learned in M&A: Free Cash Flow (FCF) Modeling. This course will teach you how to use Free Cash Flow to evaluate acquisition opportunities. You will learn the components of Free Cash Flow and its relationship with market value, which would help you excel as a Financial Analyst.

See salaries and explore the career path for Financial Analyst

Private Equity Associate

In many cases, Private Equity Associates are responsible for evaluating and executing investments in private companies. M&A: Free Cash Flow (FCF) Modeling will introduce you to the steps to calculate Cost of Capital and how to use Free Cash Flow for Capital Budgeting Decisions. Whether you are an experienced or new Private Equity Associate, you should definitely add this course to your curriculum.

See salaries and explore the career path for Private Equity Associate

Venture Capitalist

Venture Capitalists provide funding to early-stage companies with high growth potential. Those in this profession must be able to evaluate a company's financial health and make recommendations on how to invest. M&A: Free Cash Flow (FCF) Modeling is perfect for you as it will teach you how to use Free Cash Flow to evaluate acquisition opportunities. This will give you insight on how to grow your portfolio and become a more successful Venture Capitalist.

See salaries and explore the career path for Venture Capitalist

Mergers and Acquisitions (M&A) Analyst

M&A Analysts help companies evaluate and execute mergers and acquisitions. They analyze financial data, build financial models, and provide recommendations on the feasibility of potential transactions. M&A: Free Cash Flow (FCF) Modeling is an asset to you as you learn how to calculate the Cost of Capital and use Free Cash Flow to evaluate acquisition opportunities.

See salaries and explore the career path for Mergers and Acquisitions (M&A) Analyst

Investment Banker

Investment Bankers provide financial advisory services to corporations and governments. Those in this position must know how to analyze a company's financial health and make recommendations on how to raise capital or make acquisitions. M&A: Free Cash Flow (FCF) Modeling will be perfect for making you a more effective Investment Banker by teaching you how to use Free Cash Flow to evaluate acquisition opportunities.

See salaries and explore the career path for Investment Banker

Corporate Development Manager

Corporate Development Managers lead and execute the development strategy for companies. They evaluate growth opportunities through acquisitions, partnerships, and new product development. They may also be responsible for integrating acquisitions. M&A: Free Cash Flow (FCF) Modeling will add to your skillset as you will gain the ability to use Free Cash Flow to evaluate acquisition opportunities and the relationship between Free Cash Flow and Economic Value Added.

See salaries and explore the career path for Corporate Development Manager

Financial Consultant

Financial Consultants provide financial advice to individuals and businesses. They help clients with a variety of financial planning needs, such as retirement planning, investment management, and tax planning. M&A: Free Cash Flow (FCF) Modeling may be helpful to you as you learn the steps to calculate Cost of Capital and how to use Free Cash Flow for Capital Budgeting Decisions.

See salaries and explore the career path for Financial Consultant

Accountant

Accountants prepare and maintain financial records. They also provide financial advice to businesses and individuals. M&A: Free Cash Flow (FCF) Modeling may help you as you adjust accounting data to get to Free Cash Flow, and identify the components of Free Cash Flow. This course also reviews the relationship between Free Cash Flow and Net Income.

See salaries and explore the career path for Accountant

Auditor

Auditors examine financial records to ensure that they are accurate and complete. They also provide assurance to investors and other stakeholders about the reliability of financial information. M&A: Free Cash Flow (FCF) Modeling may be useful to you as it will help you understand the components of Free Cash Flow and how to use Free Cash Flow to evaluate acquisition opportunities.

See salaries and explore the career path for Auditor

Business Analyst

Business Analysts analyze business processes and make recommendations on how to improve efficiency and effectiveness. They may also work on developing and implementing new systems and technologies. M&A: Free Cash Flow (FCF) Modeling may be useful for those in or looking to get into this role as it touches upon Return on Investment and discusses the relationship between Free Cash Flow and Market Value.

See salaries and explore the career path for Business Analyst

Budget Analyst

Budget Analysts help organizations develop and manage their budgets. They analyze financial data, identify trends, and make recommendations on how to allocate resources. M&A: Free Cash Flow (FCF) Modeling may aid you, as you learn the steps to calculate Cost of Capital and how to use Free Cash Flow for Capital Budgeting Decisions.

See salaries and explore the career path for Budget Analyst

Credit Analyst

Credit Analysts evaluate the creditworthiness of borrowers. They analyze financial data and make recommendations on whether or not to lend money to a particular borrower. M&A: Free Cash Flow (FCF) Modeling may be useful if you need to develop a Free Cash Flow approach to Incentive Compensation.

See salaries and explore the career path for Credit Analyst

Commercial Banker

Commercial Bankers provide financial services to businesses. They help businesses with a variety of financial needs, such as lending, cash management, and investment management. M&A: Free Cash Flow (FCF) Modeling may be useful as you learn how to use Free Cash Flow to evaluate acquisition opportunities.

See salaries and explore the career path for Commercial Banker

Financial Planner

Financial Planners help individuals and families achieve their financial goals. They provide advice on a variety of financial topics, such as retirement planning, investment management, and estate planning. M&A: Free Cash Flow (FCF) Modeling may be useful as you analyze financial data and make recommendations on how to allocate resources.

See salaries and explore the career path for Financial Planner

Operations Manager

Operations Managers oversee the day-to-day operations of a business. They are responsible for planning, organizing, and directing the activities of the organization. M&A: Free Cash Flow (FCF) Modeling may help if you wish to learn how to use Free Cash Flow to evaluate acquisition opportunities.

See salaries and explore the career path for Operations Manager

Reading list

We've selected 16 books that we think will supplement your learning. Use these to develop background knowledge, enrich your coursework, and gain a deeper understanding of the topics covered in M&A: Free Cash Flow (FCF) Modeling.

Mergers, Acquisitions, and Corporate Restructurings

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Provides a comprehensive overview of mergers and acquisitions, including the financial, legal, and strategic aspects. This book valuable resource for those who want to learn more about the M&A process and common textbook in academic institutions.

Mergers, Acquisitions, and Corporate Restructurings...

Hardcover

$$$

Mergers, Acquisitions, and Corporate Restructurings

M&A

Free Cash Flow (FCF) Modeling

What you'll learn

What's inside

Learning objectives

Syllabus

Good to know

Save this course

Activities

Career center

Reading list

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