FCF, if it's comprised of Buffett's Owner Earnings, makes a bit of sense, however, using EBIT doesn't. Interest and Taxes are very real charges to the bottom line and should always be included. Buffett said to stay away from companies that promote Pro Forma and EBITDA accounting. He probably should have and meant to include EBIT as well. In any event, Adjusted Earnings, which account for one time and non cash items, is the measurement I rely on the most. You should always make your comparisons against reported earnings as well to understand the entire picture. If your reported earnings are $1 ps, for example, and you find after adjustments that true earnings are $0.85 yielding a 10% E/P and AAA Bonds are yielding 4.68%, then you've got a nice piece of the puzzle solved.
As far as discounting inventories and recievables for a "going concern" in the fashion that one woud a liquidation, that's not practical. The reason we discount these items during a liquidation situation, or possibility thereof, is because the company MUST liquidate and they will not fetch top dollar for these items. As well, a buyer recognizes this and WON'T offer top dollar (market value) for these items. If the company is in no need or desire of disposing itself, then these items are worth what they're worth and there's no need to discount them UNLESS you find that the items are worth less than what is stated on the books. If the company is a going concern, the current ratio is the correct process.
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