Why EBIT*(1-t)+D&A-Chng NWC-Capex is not equal CFO-CFI?

think about the EBIT*(t-1) ...

naivekid

For one company I did both methods and arrived to substantially different numbers. My calculations are wrong or these two methods are designed to be different?

Thx

It depends on what items are in the CF statement and how you look at EBIT (normalized or taken "as is"). It isn't uniform. Your analysis was with two companies where only CapEx was CFI. If a company disposed of assets, that would change the balance between the two. There are also investing activities related to securities, particularly for financial institutions and Apple.

First of all, amortization should also be included in the first calc you listed.

Assuming you meant to say D&A instead of Depreciation only, then one of two things, perhaps both is happening:

(1) There's some sort of large non-cash operating expense buried in GAAP/IFRS OpEx. If per chance you're taking this for a software or internet company then it's probably Stock Based Compensation (SBC) grants that's screwing your calc. Other things to check include making sure your D&A captures amortization of intangibles, checking if you've captured non-cash interest, various deferred tax provisions, etc.

and/or

(2) You did something wrong.

peinvestor2012 naivekid:

For one company I did both methods and arrived to substantially different numbers. My calculations are wrong or these two methods are designed to be different?

Thx

It depends on what items are in the CF statement and how you look at EBIT (normalized or taken "as is"). It isn't uniform. Your analysis was with two companies where only CapEx was CFI. If a company disposed of assets, that would change the balance between the two. There are also investing activities related to securities, particularly for financial institutions and Apple.

Ya you are right, the only CFI listed on the statement is Capex. Thanks a lot, and the company is telecom (wireless/fiber/local).

Nouveau Richie

First of all, amortization should also be included in the first calc you listed.

Assuming you meant to say D&A instead of Depreciation only, then one of two things, perhaps both is happening:

(1) There's some sort of large non-cash operating expense buried in GAAP/IFRS OpEx. If per chance you're taking this for a software or internet company then it's probably Stock Based Compensation (SBC) grants that's screwing your calc. Other things to check include making sure your D&A captures amortization of intangibles, checking if you've captured non-cash interest, various deferred tax provisions, etc.

and/or

(2) You did something wrong.

Ya I meant D&A (I included amortization). The company is a telco. I will check out non-cash OpEx. Thanks and I would appreciate if you could list potential non-cash opex items from the top of you head.

This can't be a serious question. For starters, interest, other adjustments that would show up in CFO calc, non-op expenses. Your formula is for unlevered fcf. This will never match what the company reports as CFO - CFO