easy · Corporate Credit Analysis fsa

Why do credit analysts often focus on FCFF (or unlevered FCF) when comparing companies in the same industry?

1. It allows for a 'like-for-like' comparison of the operating efficiency of the businesses, regardless of how they are financed.
2. Because FCFF includes dividends paid to shareholders, which are the primary concern for credit analysts assessing risk.
3. Because FCFF is generally always a larger number than FCFE, which tends to make the industry's overall financial profile look stronger.
4. It is a mandatory requirement under formal SEC regulations that all analysts must use FCFF exclusively in industry benchmark reports.

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