Capex - Media companies
Hi,
I am analysing a media company and when considering the Capex on the cash flow statement, it only includes PP&E. However, the company has substantial "programming costs" as it purchases rights for programming. The programming costs go straight to P&L and are not part of the inventory. I am wondering whether I should in the FCF calculation use only the Capex that is on the CF statement, or include the investment in programming, or a change in programming, as well.
Any thoughts?
Thanks
Correct me if I'm wrong, but if you start calculating the FCFF with earnings you have already included the programming costs then, because the go straight to P&L. So I would use only the Capex that is on the CF statement.
But wouldn't it understate the "true" capex that relates to the business of the media company? I mean if I have a a manufacturing company and I purchase a machinery to make my products, these purchases of PP&E are my capex. But media company doesn't need to purchase any PP&E; it needs to purchase the programming licenses it can show on TV. So the purchases of programming are the "true" investments the company needs to make in order to stay in the course of business....
What still doesn't affect the FCFF number in my opinion, because it doesn't matter if it is included in CapEx or in earnings, except for estimation matters.
If you want to show these expenses in CapEx you can add back these costs to earnings and also add em to CapEx
Though I can't give you professional advice - just the thoughts of a German 2nd year student :D
These licensing costs are usually factored in the cash from operations already, so you don't need to add another specific row for FCFF calculation.
One of the reasons CapEx is used the FCFF calculations is because capex is not reflected in the P/L. Think about it, if these licensing acquisition costs are already reflected in the P/L and lowered reported income, why would you subtract it from the lowered income again?
Est iusto aut maiores. Voluptatem harum minima necessitatibus sit. Mollitia soluta et ea veritatis.
Et voluptatum et suscipit omnis quae sit est vel. Soluta voluptatem qui hic est voluptas.
Sed omnis et et molestiae consectetur placeat nisi. Sit architecto fugit beatae aperiam est laboriosam soluta. Tenetur voluptatem dolore quasi maxime consequatur et repellat. Molestiae nobis voluptate natus qui odit nihil reiciendis. Eligendi quae perferendis voluptate dolorem eius sed et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Consectetur quibusdam molestias quidem tenetur sunt. Ullam quibusdam autem maiores.
Doloremque esse et voluptas. Adipisci a ipsa placeat hic. Aliquam distinctio amet facere et. Suscipit nostrum similique quis earum et.