# Four (4) Different Ways to Calculate DCF Based ‘Equity Cash Flow (ECF)’ – Part 3 of 4

[This article was first published on

Want to share your content on R-bloggers? click here if you have a blog, or here if you don't.

**R-posts.com**, and kindly contributed to R-bloggers]. (You can report issue about the content on this page here)Want to share your content on R-bloggers? click here if you have a blog, or here if you don't.

This represents

**Part 3**of a

**4-part series**relative to the calculation of

**Equity Cash Flow**(

**ECF**) using

**R**. If you missed

**Parts 1 and 2**, be certain to reference them before proceeding. Content in this section builds off previously described information/data.

**Part 1**prior post is located here – Part 1 of 4 .

**Part 2**prior post is located here – Part 2 of 4 .

**‘ECF – Method 3’**is defined as follows: In words, Equity Cash Flow (

**ECF**) equals Net Income (

**NI**) less after-tax Interest Income less the change in the quantity ‘Equity Book Value (

**Ebv**) minus Marketable Securities (

**MS**).’ All terms in the equation are defined in the prior posts except for

**Ebv**.

Reference details of the

**5-year capital project’s fully integrated financial statements developed in R**at the following link. The R output is formatted in Excel and produced in a PDF file for ease of viewing. Zoom the PDF for detail.

Financial Statements The Equity Book Value (

**Ebv**) vector is added to the

**data**tibble below.

data <- data %>% mutate(Ebv = c(250000, 295204.551, 429491.869, 678425.4966, 988024.52, 0 ))Though

**Ebv**values are entered as known values, they are calculated in the text noted at the conclusion of this post.

**View tibble.**

**R**function

**ECF3**defines the Equity Cash Flow (

**ECF**) equation and its components.

**‘ECF – Method 3’ R function**

ECF3 <- function(a, b) { library(tibble) ECF3 <- a$ni -a$ii*(1-a$T_) - ( a$Ebv -lag(a$Ebv, default=0) ) + ( a$MS - lag(a$MS, default=0) ) ECF_3 <- tibble(T = a$T_, ii = a$ii, ni = a$ni, Year = c(0:(length(ii)-1)), ii_AT = -ii*(1-T), ni_less_ii_AT = ni + ii_AT, Ebv = a$Ebv, MS = -a$MS, Ebv_less_MS = Ebv + MS, chg_Ebv_less_MS = - (Ebv_less_MS - lag(Ebv_less_MS, default=0) ) , ECF_3 = ni_less_ii_AT + chg_Ebv_less_MS ) ECF_3 <- rotate(ECF_3) return(ECF_3) }

**Run the R function and view the output.**

R Output formatted in Excel

R Output formatted in Excel

**ECF – Method 3**

**‘**

**ECF Method 3**‘ agrees with the prior published methods each year. Any differences are due to rounding error.

This

**ECF**calculation example is taken from my newly published textbook, ‘

**Advanced Discounted Cash Flow (DCF) Valuation Using R**.’ The above method is discussed in far greater detail along with development of the integrated financials using R as well

**40+**advanced

**DCF**valuation models – all of which are

**value-additivity compliant**. Typical corporate finance texts do not teach this very important concept.

The text importantly clearly explains ‘

**why**’ these

**ECF**calculation methods are mathematically equivalent, though the equations may appear vastly different.

Reference my website for further details.

**https://www.leewacc.com/**

Next up, ‘

**ECF – Method 4**‘ …

**Brian K. Lee, MBA, PRM, CMA, CFA**

Four (4) Different Ways to Calculate DCF Based ‘Equity Cash Flow (ECF)’ – Part 3 of 4 was first posted on August 17, 2021 at 4:03 pm.

To

**leave a comment**for the author, please follow the link and comment on their blog:**R-posts.com**.R-bloggers.com offers

**daily e-mail updates**about R news and tutorials about learning R and many other topics. Click here if you're looking to post or find an R/data-science job.

Want to share your content on R-bloggers? click here if you have a blog, or here if you don't.