URGENT: Projecting CFS Question

Trying to project the CFS. Please tell me where am I going wrong.

Once we have the Projected IS and BS, we can use these to project the CFS. Now the only issue I am facing with this is that there are a few line items in the historical CFS that this particular company use to report its financials (such as Stock-based Compensation, Deferred Taxes, Options Exercised, Tax Benefits from Stock Options). Now, if I only use the IS & BS to project the CFS, I would have to eliminate these line items or use 0 as my values, as I cannot determine the value of these line items from the IS & BS.

OK. But if you eliminate these line items or use 0s for your projected CFS, how can it project right amount of cash flows without taking into consideration these line items?

Should I just use 0s? Is that OK?
If not, how can I project those line items?

 
Best Response

If you zero out going forward, you need to back out the impact of those items on the IS/BS -- which, if you're looking at a public company is probably impossible given the lack of visibility into those items you mentioned. That said, I'd try to see if there is some precedent historically for those items on the CFS. If so, tie the growth of those items to the IS (rev or expenses, depending on item) -- for taxes and such, probably best to zero out, but completely depends on how you account for projected tax expense on the IS. It's not going to be perfect, but don't get bogged down with the little details on the CFS (my guess is that they are probably pretty insignificant).

 

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