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Pascal PIERRE edited section_Building_a_Profitability_Valuation__.tex
almost 8 years ago
Commit id: 6bf99c5d839a30c09b0619d6cd2c0a40158cc435
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Thirdly, we need to identify a certain number of accounting identities similar to the ones we used for the \textit{RIM} in order to link cash-flow generation, the balance sheet and the market value of the balance sheet.
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As its name suggests, the \textit{RIM} hinges on the clean surplus accounting identity, where profits that are not distributed to shareholders are reinvested in the firm thus changing the value of the equity. Similarly, the cash generated by the firm that is not distributed to equity holders and debt holders is reinvested in the firm
in net capital expenditures and
we have the following \textit{FCFF} definition non-cash working capital :
\begin{equation}
FCFF_{t}=NOPAT_{t}+NetCapex_{t} FCFF_{t}=NOPAT_{t}+NetCapex_{t}+\bigtriangleup WC_{t}
\end{equation}
Where $NOPAT_{t}$ is the Net Operating Profit After Tax at time $t$ and $NetCapex_{t}$ are the Capital Expenditures Net of Depreciation