When it comes to financial analysis, there are two metrics that internal stakeholders and external users, such as investors and analysts, can use to assist with analyzing a business’s operations.
Free cash flow to the firm (FCFF) is used as part of a discount cash flow (DCF) calculation that aids in determining a company’s intrinsic value, helping investors make better informed decisions. This metric provides insight into how much cash flow is available to all funding claimants of the business (be it convertible bond investors, debt holders, and preferred and common stockholders). This is compared to free cash flow to equity (FCFE), which is how much cash flow a business can use if it has zero debt.
While there are many ways to arrive at FCFF, the following is one way to calculate it:
Step 1
Start with Net Operating Profit (NOPAT), which is determined by Earnings Before Interest and Taxes x (1 – Tax Rate)
Step 2
Add Depreciation and Amortization expenses to NOPAT
Step 3
Remove Capital Expenditures
Step 4
Remove Modifications in Net Working Capital
Further Considerations of FCFF Versus FCFE
FCFF assumes there are no payments for interest; nor have any changes in debt been factored in the company’s financial statements. FCFE factors in interest payments and any applicable changes in debt the company may have taken or paid off during the particular accounting time frame. FCFE provides analysts with the ability to determine how efficient a company is and how well (or not) it is at producing cash for equity holders.
Defining NOPAT
NOPAT is a way to see what the company’s operations produce, assuming it has no debt and, accordingly, no outstanding interest expense obligations. It gives analysts and investors an opportunity to look at potential investments with a standardized metric because companies can be seen as having debt and not having debt. It provides easier ability to see if companies can obtain and/or manage debt levels, along with other financial metrics used by investors and analysts.
Along with the already established formula to calculate NOPAT, there’s an alternate formula:
(Net Income + Tax + Interest Expense + Any Non-Operating Gains/Losses] x (1 – Tax Rate)
Operating Earnings = the company’s profits pre interest and taxes (or what the company would earn if it had zero debt, and therefore zero interest expense).
Putting NOPAT in Context
Other important considerations for NOPAT are that it excludes changes in accounts receivable, inventory, accounts payable, and inventory. Additionally, it excludes capital expenditures but accounts for amortization and depreciation.
How NOPAT Assists Analysts and Investors
Businesses can use this data to see how this metric drills down on the business’s core functions. It’s a way to determine how profitable or not a business’ core functions are over shorter and longer time frames. It helps businesses determine how efficient a company is against its competitors since it removes debt and tax comparisons.
Analysis is easier for both businesses looking for acquisitions and for investors. NOPAT helps investors determine which companies are most efficient within their sector based on their main functions. It helps remove the “noise” of debt levels and tax situations.
Looking at these two metrics at face value can seem daunting, but after breaking them down and understanding the differences, it’s easier to see how they aid in financial analysis.
Alan F Burke CPA
Understanding the Differences Between FCFF and NOPAT
March 1, 2025 · Accounting News, Blog
⏱ 3 min read
When it comes to financial analysis, there are two metrics that internal stakeholders and external users, such as investors and analysts, can use to assist with analyzing a business’s operations.
Free cash flow to the firm (FCFF) is used as part of a discount cash flow (DCF) calculation that aids in determining a company’s intrinsic value, helping investors make better informed decisions. This metric provides insight into how much cash flow is available to all funding claimants of the business (be it convertible bond investors, debt holders, and preferred and common stockholders). This is compared to free cash flow to equity (FCFE), which is how much cash flow a business can use if it has zero debt.
While there are many ways to arrive at FCFF, the following is one way to calculate it:
Step 1
Start with Net Operating Profit (NOPAT), which is determined by Earnings Before Interest and Taxes x (1 – Tax Rate)
Step 2
Add Depreciation and Amortization expenses to NOPAT
Step 3
Remove Capital Expenditures
Step 4
Remove Modifications in Net Working Capital
Further Considerations of FCFF Versus FCFE
FCFF assumes there are no payments for interest; nor have any changes in debt been factored in the company’s financial statements. FCFE factors in interest payments and any applicable changes in debt the company may have taken or paid off during the particular accounting time frame. FCFE provides analysts with the ability to determine how efficient a company is and how well (or not) it is at producing cash for equity holders.
Defining NOPAT
NOPAT is a way to see what the company’s operations produce, assuming it has no debt and, accordingly, no outstanding interest expense obligations. It gives analysts and investors an opportunity to look at potential investments with a standardized metric because companies can be seen as having debt and not having debt. It provides easier ability to see if companies can obtain and/or manage debt levels, along with other financial metrics used by investors and analysts.
Along with the already established formula to calculate NOPAT, there’s an alternate formula:
(Net Income + Tax + Interest Expense + Any Non-Operating Gains/Losses] x (1 – Tax Rate)
Operating Earnings = the company’s profits pre interest and taxes (or what the company would earn if it had zero debt, and therefore zero interest expense).
Putting NOPAT in Context
Other important considerations for NOPAT are that it excludes changes in accounts receivable, inventory, accounts payable, and inventory. Additionally, it excludes capital expenditures but accounts for amortization and depreciation.
How NOPAT Assists Analysts and Investors
Businesses can use this data to see how this metric drills down on the business’s core functions. It’s a way to determine how profitable or not a business’ core functions are over shorter and longer time frames. It helps businesses determine how efficient a company is against its competitors since it removes debt and tax comparisons.
Analysis is easier for both businesses looking for acquisitions and for investors. NOPAT helps investors determine which companies are most efficient within their sector based on their main functions. It helps remove the “noise” of debt levels and tax situations.
Looking at these two metrics at face value can seem daunting, but after breaking them down and understanding the differences, it’s easier to see how they aid in financial analysis.
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
Identity theft is when someone steals your personal information and then uses it to commit fraud. They may access your Social Security or Medicare number, employee ID, utility, credit card or bank account numbers. Once the scammer has this information, he can conduct all kinds of crimes, such as withdraw assets from your accounts, open and close accounts in your name, take out loans or new lines of credit in your name, and even impersonate you if they get arrested – leaving you with a criminal record you may not even know about.
How Do Scammers Steal Your Identity?
Whereas scammers used to rummage through trash cans; today they can hack into your emails, social media, and personal accounts. That’s because we conduct so many of our transactions online now, they don’t even need to be physically present to take something from you.
Today, your data – contact information (e.g., phone number, email, address) and account numbers (e.g., financial, Social Security, employment ID) are all commodities that are bought and sold by both legitimate and illicit entities. Even the most harmless retail outlets solicit information, like your email and phone number in exchange for a 15 percent discount or free shipping. They can use this information for their own purposes and/or sell compiled lists to whoever will pay for it. The more you freely put your information out there, the higher your risk of identity theft or other forms of fraud.
Warning Signs
Paid Actors: Scammers may contact you directly via phone, email or text about a security breach or an offer you can’t refuse. They are professionals – they do this all day, every day, and know how to sound convincing. They may even trick you into giving out personal details (e.g., what’s your husband’s name? Are your parents still alive? How old is your daughter?) without you even realizing it.
Check Your Trust Instinct: Most people have an innate instinct to believe in the good of others, particularly those entrusted with our assets. That’s why when your bank calls, you become immediately concerned and receptive to their efforts to protect you. However, do not trust automatically and always verify.
Move Your Money: Let’s say someone from your bank calls and says they detected an unusually large transaction from your account. They may suggest you call your bank directly to stop the transaction and give you the local number to call. When you call, you may simply reach another scammer. They will often recommend you transfer your assets to a new account and close the old one to prevent fraudulent transactions by having a new account number – which the scammer will also have. If you are asked to move your funds to another account, this is a red flag.
SIM Swapping: If your phone stops working for no apparent reason, it’s possible your SIM card (or e-SIM) has been stolen. This is the memory chip found in phones, tablets, and smartwatches that stores your contact information, text messages, and passwords. It is incredibly valuable to scammers because it can enable them to log into your financial accounts. Even if you use two-factor authentication, he can intercept the code sent to your phone to verify your identity. He can then drain your assets, make unauthorized purchases on your debit and credit cards, and even lock you out of your own social media accounts by changing your passwords. Remember, immediately contact your carrier if your phone stops working. This may indicate that your phone number has been reassigned to another SIM.
How To Stop Today’s Scammers
The quicker you detect the problem, the faster you can shut it down and the less damage can be done to your personal and financial circumstances. Consider these tips:
Put a freeze on your credit report with each of the three (3) credit reporting agencies – Equifax, Experian and TransUnion. You can unfreeze them any time you apply for new credit.
Request fraud alerts from any of the three credit bureaus.
Check your three (3) credit reports and your credit score every year for any changes or unfamiliar accounts.
Never invest based on the advice of someone you’ve only encountered online.
Add a trusted contact to your financial accounts, whom your financial firm may contact if you appear to be making unusual transactions.
Passwords are the bane of modern-day technology. One way to minimize how many you have to keep changing is to add multifactor authentication – a two-step process that requires you to enter a unique code sent via email or text message each time you log in to an online account.
Monitor your account activity. If you still get statements by mail, be sure to read them every month. If you do all your transactions online, review them at least once a month to ensure there are no unexplained charges.
And finally, if you ever have an encounter with a scammer, share your experience with your friends, colleagues, and family members. This is particularly helpful for older folks, who are less familiar with how technology is used these days. We tend to live in a bubble and assume our assets and our identity are safe since no one we know has ever been victimized. But in fact, some people keep quiet because they are embarrassed. Don’t be. Share your story with friends; spread the word so others are more aware and more vigilant. Fraud and identity theft can happen to anyone.
Alan F Burke CPA
What’s New in Identity Theft?
March 1, 2025 · Blog, Financial Planning
⏱ 5 min read
Identity theft is when someone steals your personal information and then uses it to commit fraud. They may access your Social Security or Medicare number, employee ID, utility, credit card or bank account numbers. Once the scammer has this information, he can conduct all kinds of crimes, such as withdraw assets from your accounts, open and close accounts in your name, take out loans or new lines of credit in your name, and even impersonate you if they get arrested – leaving you with a criminal record you may not even know about.
How Do Scammers Steal Your Identity?
Whereas scammers used to rummage through trash cans; today they can hack into your emails, social media, and personal accounts. That’s because we conduct so many of our transactions online now, they don’t even need to be physically present to take something from you.
Today, your data – contact information (e.g., phone number, email, address) and account numbers (e.g., financial, Social Security, employment ID) are all commodities that are bought and sold by both legitimate and illicit entities. Even the most harmless retail outlets solicit information, like your email and phone number in exchange for a 15 percent discount or free shipping. They can use this information for their own purposes and/or sell compiled lists to whoever will pay for it. The more you freely put your information out there, the higher your risk of identity theft or other forms of fraud.
Warning Signs
Paid Actors: Scammers may contact you directly via phone, email or text about a security breach or an offer you can’t refuse. They are professionals – they do this all day, every day, and know how to sound convincing. They may even trick you into giving out personal details (e.g., what’s your husband’s name? Are your parents still alive? How old is your daughter?) without you even realizing it.
Check Your Trust Instinct: Most people have an innate instinct to believe in the good of others, particularly those entrusted with our assets. That’s why when your bank calls, you become immediately concerned and receptive to their efforts to protect you. However, do not trust automatically and always verify.
Move Your Money: Let’s say someone from your bank calls and says they detected an unusually large transaction from your account. They may suggest you call your bank directly to stop the transaction and give you the local number to call. When you call, you may simply reach another scammer. They will often recommend you transfer your assets to a new account and close the old one to prevent fraudulent transactions by having a new account number – which the scammer will also have. If you are asked to move your funds to another account, this is a red flag.
SIM Swapping: If your phone stops working for no apparent reason, it’s possible your SIM card (or e-SIM) has been stolen. This is the memory chip found in phones, tablets, and smartwatches that stores your contact information, text messages, and passwords. It is incredibly valuable to scammers because it can enable them to log into your financial accounts. Even if you use two-factor authentication, he can intercept the code sent to your phone to verify your identity. He can then drain your assets, make unauthorized purchases on your debit and credit cards, and even lock you out of your own social media accounts by changing your passwords. Remember, immediately contact your carrier if your phone stops working. This may indicate that your phone number has been reassigned to another SIM.
How To Stop Today’s Scammers
The quicker you detect the problem, the faster you can shut it down and the less damage can be done to your personal and financial circumstances. Consider these tips:
Put a freeze on your credit report with each of the three (3) credit reporting agencies – Equifax, Experian and TransUnion. You can unfreeze them any time you apply for new credit.
Request fraud alerts from any of the three credit bureaus.
Check your three (3) credit reports and your credit score every year for any changes or unfamiliar accounts.
Never invest based on the advice of someone you’ve only encountered online.
Add a trusted contact to your financial accounts, whom your financial firm may contact if you appear to be making unusual transactions.
Passwords are the bane of modern-day technology. One way to minimize how many you have to keep changing is to add multifactor authentication – a two-step process that requires you to enter a unique code sent via email or text message each time you log in to an online account.
Monitor your account activity. If you still get statements by mail, be sure to read them every month. If you do all your transactions online, review them at least once a month to ensure there are no unexplained charges.
And finally, if you ever have an encounter with a scammer, share your experience with your friends, colleagues, and family members. This is particularly helpful for older folks, who are less familiar with how technology is used these days. We tend to live in a bubble and assume our assets and our identity are safe since no one we know has ever been victimized. But in fact, some people keep quiet because they are embarrassed. Don’t be. Share your story with friends; spread the word so others are more aware and more vigilant. Fraud and identity theft can happen to anyone.
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
As tax filing season begins, scammers are ramping up efforts to steal taxpayers’ personal information through increasingly sophisticated schemes. Below, we discuss the latest scam, what to look out for in general, and what to do if you suspect something malicious.
New Scam of the Season
The U.S. Treasury Inspector General for Tax Administration (TIGTA) recently issued an alert about a prevalent scam involving Economic Impact Payments.
In this scheme, taxpayers receive texts claiming they’re eligible for a $1,400 Economic Impact Payment, requesting personal information and bank details for deposit. While the IRS is indeed processing some legitimate Recovery Rebate Credit payments from 2021 tax returns, they will never request personal information via text or social media. These legitimate payments will be automatically distributed by late January 2025, either through direct deposit or paper check, with official notification letters sent separately.
Detecting Scam in General
The cybersecurity firm Guardio reports a 77 percent increase in IRS-related spam messages, highlighting how scammers exploit taxpayers’ fears of making mistakes on their returns. Common manipulation tactics include urgent messages claiming:
Tax return errors requiring immediate action to avoid penalties
Account flags demanding immediate information verification to prevent legal action
These fraudulent messages typically contain malicious links designed to steal sensitive information like Social Security numbers, banking details, and payment credentials. They often masquerade as official IRS forms or legitimate tax advisory companies.
Key Warning Signs of Tax Scams:
Requests for sensitive personal or financial information
Links to suspicious websites (legitimate government sites end in .gov)
Misspellings, grammatical errors, or inconsistent formatting
Fuzzy or distorted official logos
Initial contact via email, phone, text, or social media instead of postal mail
What to Do if You Receive a Suspicious Message
If you receive a suspicious message, don’t engage with it. Never click links or provide personal information to unknown sources. Report potential fraud by forwarding the message to phishing@irs.gov or filing a report with TIGTA. If you’re uncertain about correspondence claiming to be from the IRS, verify it by calling 800-829-1040 or visiting IRS.gov. Your online IRS account will display any official notices mailed to you.
If you’ve accidentally engaged with a scam:
Immediately close any suspicious website tabs
Change passwords for potentially compromised accounts
Contact your bank or credit card provider to monitor for fraudulent activity
Report the incident to the IRS and file an identity theft report with the Federal Trade Commission
Consider notifying local law enforcement
When searching for tax-related information online, only use official sources like IRS.gov or the official IRS app. Be wary of sponsored ads and search results that might lead to fraudulent websites. Consider bookmarking official sites for quick, secure access.
Conclusion
Remember, the IRS will never initiate contact through email, text, or social media. When in doubt, assume it’s a scam and verify through official channels. Keeping your personal information secure requires constant vigilance, especially during tax season when scammers are most active.
Alan F Burke CPA
As Tax Season Opens, We Must Stay Alert to Rising Scam Threats
March 1, 2025 · Blog, Tax and Financial News
⏱ 3 min read
As tax filing season begins, scammers are ramping up efforts to steal taxpayers’ personal information through increasingly sophisticated schemes. Below, we discuss the latest scam, what to look out for in general, and what to do if you suspect something malicious.
New Scam of the Season
The U.S. Treasury Inspector General for Tax Administration (TIGTA) recently issued an alert about a prevalent scam involving Economic Impact Payments.
In this scheme, taxpayers receive texts claiming they’re eligible for a $1,400 Economic Impact Payment, requesting personal information and bank details for deposit. While the IRS is indeed processing some legitimate Recovery Rebate Credit payments from 2021 tax returns, they will never request personal information via text or social media. These legitimate payments will be automatically distributed by late January 2025, either through direct deposit or paper check, with official notification letters sent separately.
Detecting Scam in General
The cybersecurity firm Guardio reports a 77 percent increase in IRS-related spam messages, highlighting how scammers exploit taxpayers’ fears of making mistakes on their returns. Common manipulation tactics include urgent messages claiming:
Tax return errors requiring immediate action to avoid penalties
Account flags demanding immediate information verification to prevent legal action
These fraudulent messages typically contain malicious links designed to steal sensitive information like Social Security numbers, banking details, and payment credentials. They often masquerade as official IRS forms or legitimate tax advisory companies.
Key Warning Signs of Tax Scams:
Requests for sensitive personal or financial information
Links to suspicious websites (legitimate government sites end in .gov)
Misspellings, grammatical errors, or inconsistent formatting
Fuzzy or distorted official logos
Initial contact via email, phone, text, or social media instead of postal mail
What to Do if You Receive a Suspicious Message
If you receive a suspicious message, don’t engage with it. Never click links or provide personal information to unknown sources. Report potential fraud by forwarding the message to phishing@irs.gov or filing a report with TIGTA. If you’re uncertain about correspondence claiming to be from the IRS, verify it by calling 800-829-1040 or visiting IRS.gov. Your online IRS account will display any official notices mailed to you.
If you’ve accidentally engaged with a scam:
Immediately close any suspicious website tabs
Change passwords for potentially compromised accounts
Contact your bank or credit card provider to monitor for fraudulent activity
Report the incident to the IRS and file an identity theft report with the Federal Trade Commission
Consider notifying local law enforcement
When searching for tax-related information online, only use official sources like IRS.gov or the official IRS app. Be wary of sponsored ads and search results that might lead to fraudulent websites. Consider bookmarking official sites for quick, secure access.
Conclusion
Remember, the IRS will never initiate contact through email, text, or social media. When in doubt, assume it’s a scam and verify through official channels. Keeping your personal information secure requires constant vigilance, especially during tax season when scammers are most active.
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
When it comes to financial analysis, there are two metrics that internal stakeholders and external users, such as investors and analysts, can use to assist with analyzing a business’s operations.
Identity theft is when someone steals your personal information and then uses it to commit fraud. They may access your Social Security or Medicare number, employee ID, utility, credit card or bank account numbers. Once the scammer has this information, he can conduct all kinds of crimes, such as withdraw assets from your accounts, open and close accounts in your name, take out loans or new lines of credit in your name, and even impersonate you if they get arrested – leaving you with a criminal record you may not even know about.
As tax filing season begins, scammers are ramping up efforts to steal taxpayers’ personal information through increasingly sophisticated schemes. Below, we discuss the latest scam, what to look out for in general, and what to do if you suspect something malicious.