FCF will be understated if you aren't taking into account supposed interest or cost of equity or pref equity.
Lets just say, hypothetically, AFY raised another $50m in equity ( which would be madness) So now they are sitting on $100m in cash.
Lets then say, in a few years or so, they were acquired, and the acquirer says ok, I see you have a $200m book, $100m in borrowing, $100m being funded by equity. So I see the $100m in debt is incurring (call it) 8% in interest annually, but you are not incurring an internal charge on the equity, so I am going to discount the value of the business by that amount, as you overstating the profitability of the business, so he'd discount $7m out of the NPBT figure... this is why Net profit, where before or after tax is imperative measure for finance.
Your FCF would also be overstated as you wouldn't have charged interest on this "free" $100m in equity just sitting around being used to fund loans for free.
They would also then say, this business has a ridiculously lazy balance sheet, we only need $25-$35m in equity to fund a $200m book, and we wont be acquiring your "cash', so we either pay you $75m less or you take $75m out and we normalise the profit based on a $25m equity pool.
Just to further this point, imagine Scotpac, were 100% funded by equity...hypothetically, so they do $110m in revenue, by your theory, then the $700m in loans would be funded entirely equity, but should simply not earn a return... much like what is going on with AFY right now, if we valued the business like that, Scotpac would be worth probably around $1.5bn-$2bn based on a conservative multiple of Net interest margin, which is essentially EBITDA less some basic overheads, which in a finance company is far lower than actual costs of funds.
Unfortunately, in the real world, Scotpac are 90% or more funded by debt, and hopefully, so will AFY be in the future as it grows, therefore a vast majority of its costs will come from interest expense.
Re past spend, not sure what you mean by applying past spending indication? I am not doing that, nor interested in doing that.
As for NPAT being useless, mate every investment banker in the space would argue with you... this is very different for payments company... I would agree with you that EBITDA is an ideal measure of a payment company's worth, but this is a finance company, dressed up as a payments company.
@dubspec is this a fair summary?
