About

 Hi,

I am Wael, and obviously this is my blog.

What I am doing here is simple: sharing knowledge. I realize that what I know is still limited, but there is no harm in sharing it.

Hopefully I will never become one of those managers, parents, friends, husbands….that believe strength comes from being the only partner that knows!

Recently I read an article by Norville de Atkine, in the Middle East Review of International Affairs (Vol. 4 No. 1 March 2000), titled “Why Arabs Lose Wars.” He explained, the main reason was that Arab soldiers do not share information, the man who drives the tank knows nothing about shooting the artillery and vice versa, so in a tank unit of four soldiers the enemy had to kill only one to immobilize the tank.

This made me think about our culture, how we were raised, our education systems, and the way business is conducted in many companies. Unfortunately many of us find it necessary to hoard information, I chose not to be one of those, and chose to share my knowledge with as many people as I can, and in the most simple approach.

Hope you like what you read!

4 thoughts on “About”

    1. hey,

      Sorry I have been a little busy finishing my CFA this June, well to be accurate, I did my CFA exam this June (Level 2) and I hope that I passed!

      I will be making new posts very soon.

      Now I will reply to Ammar’s question, concerning the net borrowing component of the FCFE, I hope you find it interesting and useful.

      Thanks for your interest

      Wael

      Reply

    1. Hey Ammar,
      Well if I understand your question correctly, you are wondering why didn’t the net borrowing value fall to 0, since it should be repaid as time passes, correct?

      I think it will be useful, if we also answer another question, which is: Why do we have the net borrowing component in the FCFE valuation?

      To answer the first question, remember that the equation of net borrowing is:
      Net Borrowing = New Debt – Debt repayment.
      The only scenario where the Net Borrowing remains unchanged, is if the company is financing its debt repayments, with new loans, that are exactly equal to the company’s obligations (i.e. New debt = Debt repayment). Otherwise the Net borrowing will change.

      To answer the second question, which is why do we even consider “Net Borrowing” in our FCFE valuation.

      FCFE is the cash flow that is available to the common equity holders only, that is FCFE is all the cash flow that is available, after the company closes all of its transactions with all stake holders:

      FCFE = NI + NCC – FCINV – WCINV +(NEW DEBT –DEBT REPAYMENT)
      •NI = Deducts all operating expenses, and interest costs, from sales.
      •NCC = Non cash charges, such as depreciation, are added back, as cash was never paid out to cover these costs. It is cash that is still available to the common stock holder.
      •FCINV = Cash paid out to cover investments necessary for the firm, mainly in Property Plant and Equipment.
      •WCINVE = Cash paid out to cover working capital investments.
      •Net Borrowing = When a company takes a loan, money that is still available, after management pays interest costs, and any repayments due, is actually owned by the stock holder! That is why net borrowing is part of the FCFE equation.

      Remember, at the end of the day the stock holders are the ones liable for any debt. Naturally, the money that is left over from a loan (net borrowing) should be added in the valuation of a company. As of today any portion of the loan money, that a company holds in the bank, that is not due within the short term, should be thought of as an asset for the sake of valuation.

      I hope this helps, please let me know if you would like us to discuss this further.

      Regards,

      Wael

      Reply

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