Accounting for repayment of loan principal, current tax payable in DCF valuation analysis

All topics related to IFRS Standards.
Post Reply
Mau
Posts: 11
Joined: 01 Feb 2023, 15:27

Accounting for repayment of loan principal, current tax payable in DCF valuation analysis

Post by Mau »

Hi great minds.

What is the appropriate way to account for repayment of principal loan and current tax payable in a DCF valuation analysis.

Cheers.
JRSB
Trusted Expert
Posts: 1309
Joined: 01 Mar 2020, 01:10
Location: UK

Re: Accounting for repayment of loan principal, current tax payable in DCF valuation analysis

Post by JRSB »

Is there more than one way? :D
User avatar
Marek Muc
Site Admin
Posts: 3226
Joined: 15 Oct 2018, 17:21
Contact:

Re: Accounting for repayment of loan principal, current tax payable in DCF valuation analysis

Post by Marek Muc »

Please expand your question, what is the context etc
Mau
Posts: 11
Joined: 01 Feb 2023, 15:27

Re: Accounting for repayment of loan principal, current tax payable in DCF valuation analysis

Post by Mau »

Thanks. I mean how would they be treated in deriving free cash flow in a DCF model? Would these be added, deducted or they should be ignored?
DJP
Trusted Expert
Posts: 345
Joined: 26 Jun 2020, 15:57

Re: Accounting for repayment of loan principal, current tax payable in DCF valuation analysis

Post by DJP »

Depends on whether you are calculating free cash flow to the firm (FCFF) or free cash flow to equity (FCFE). If the former, you should not include cash flows relating to financial obligations (such as repayment of loan principal). If the latter, you do include it.
Tax cash flows are operational cash flows and should be included in either case.

This is not an accounting/IFRS question though.
User avatar
Marek Muc
Site Admin
Posts: 3226
Joined: 15 Oct 2018, 17:21
Contact:

Re: Accounting for repayment of loan principal, current tax payable in DCF valuation analysis

Post by Marek Muc »

What are you valuing and for what purpose?
Mau
Posts: 11
Joined: 01 Feb 2023, 15:27

Re: Accounting for repayment of loan principal, current tax payable in DCF valuation analysis

Post by Mau »

Dear Marek, I want to test for goodwill impairment. I am valuing a CGU. Thank you.
User avatar
Marek Muc
Site Admin
Posts: 3226
Joined: 15 Oct 2018, 17:21
Contact:

Re: Accounting for repayment of loan principal, current tax payable in DCF valuation analysis

Post by Marek Muc »

That was kind of the key information here :lol:

In general, the answer to your question is: don't include repayment of these liabilities in future cash flows

further reading:

https://ifrscommunity.com/knowledge-bas ... cash-flows
Post Reply