Free Cash Flow and CAPEX
Hi! I'm working currently on my bachelor thesis about valuation using a DCF model.
In this model the FCF is calculated according to the following procedure:
EBIT
- Adjusted taxes
=NOPLAT
+ D&A
- CAPEX
-Changes in NWC
=FCF
Concerning the CAPEX: The capex should represent the specific amount of NOPLAT that is used to invest into the company. Most textbooks say that capex can be calculated from the changes in the balance sheet. However, those changes can also be related to non-cash transactions like issuance of share or borrowing which shouldn't be considered since not operating funds are used.
Is this assumption correct?
Best
Philipp





Sometimes you'll see the
Sometimes you'll see the distinction of "unfinanced" capex which is the same thing that you're alluding to above. Capex that is directly financed by an equity or debt raise should be excluded.
Thank you very much!
Thank you very much!
capex can either come from
capex can either come from the periods FCF or existing cash balance.. it doesn't matter where it comes from to get to FCF, just know that it is a use of cash and therefore lowers FCF.
capex should not be calculated from changes of PP&E on the balance sheet as you don't know what kind of weird adjustments were made to the balance... just use the amount on the SCF. Also don't forget to include other capitalized costs that may show up in CFI - an example would be capitalized software development costs that some software companies use to pull expenses down from above EBITDA to the cash flow statement to inflate the income figure.
Don't include any financing in FCF
Bachelor's thesis? Didn't
Bachelor's thesis? Didn't even know that is a thing.
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Nefarious-: Bachelor's
Bachelor's thesis? Didn't even know that is a thing.
I think a lot of undergrad Honors programs require them.
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