Aswath Damodaran 497
Estimating FCFE last year: Aracruz
2003 numbers Normalized
Net Income from operating assets $ 119. 68 million $ 119. 68 million
- Net Capital Expenditures ( 1 - DR) $ 37. 31 million $ 71. 45 million
- Chg. Working Capital*( 1 - DR) $ 3. 05 million $ 7. 50 million
Free Cashflow to Equity $ 79. 32 million $ 40. 73 million
DR = Debt Ratio = Industry average book debt to capital ratio = 55. 98 %
Equity Reinvestment = 71. 45 million + 7. 50 million = $ 78. 95 million
Equity Reinvestment Rate = 78. 95 / 119. 68 = 65. 97 %
Aracruz has had a volatile history of reinvesting a great deal in some years and
not at all in others. The normalized net cap ex and non-cash working capital
numbers were estimated as follows:
1. We looked at aggregate net cap and changes in non-cash working capital as
a percent of aggregate net income between 1998 and 2003. We used these
percentages to compute the net cap ex and change in non-cash working
capital in 2003, but multiplying this percent by the net income for 2003.
Net Cap Ex Normalized = Net Cap Ex as percent of Net Income 98 - 03 * Net
Income 2003 = 135.61% * 119.68 = 162.30 million
Non-cash WC change normalized = Non-cash WC as percent of Net
Income 98 - 03 Net Income 2003 = 6.27% 119.68 = 17.04 million
1. We used an industry average book debt ratio of 55.98% to compute the
equity investment each year in net cap ex and change in working capital.
Net Cap Ex Normalized (1 - Debt Ratio) = 162.30 (1-.5598) = 71.45
million
Non-cash WC Normalized (1 - Debt Ratio) = 17.04 (1-.5598) = 7.50
millionn
