Can't understand the basics of financial modeling lol. Kindly help with this problem
I guess I must suck at this even after an undergrad in finance from a target.
So I was wondering if I start a business. Invest 500 euros, buy goods from it and sell it for 700 euros. Cash inflow will be 700 (500 initial inflow plus 700 for the goods sold and the 500 outflow). Now assuming I want to continue doing this I carry over the 700 euro to the next year, assume I buy goods for 500 euros and sell them again fot 700, I will have 900 in the end (700+700-500)
However in capital budgeting in the following example
https://corporatefinanceinstitute.com/resources/k…
They talk about outflows of capital. I get that. But they have given a formula for cash on hand as -
Cash = profit - capital outflow
I get this. However what about the inflow of the initial investment? Why are the financing activities not considered in this? Why is only the capital outflow considered for the project?
I know this may sound like a very dumb question. Are my questions pointing towards the fact that I'm too dumb for finance haha and should look elsewhere?
What are the valuation modeling courses that can help me out? I feel very confused.
Secondly since I'm asking dumb questions I was wondering why in some cases the cash inflow for a project is only the gross profit i.e Revenue-COGS. Would that be the case where there is no initial investment and for ex-we buy goods on credit (accounts payable would be 500) and the revenues would be (700). In this case, after the debt is resolved the cash inflow would be 200? Why am I getting confused with the basics when I have worked on cash flow statements in financial valuation projects of listed companies at uni
You're mixing up cash flow accounting and accrual based accounting. The way they describe it, Cash = profit - capital investment. That is capital expenditure which is a capitalized charge, not an expense. For the purposes of a DCF, you aren't including the money you invest as cash being returned to you...it is flowing the wrong way. They are talking about cash as in free cash flow available to the investor. The cash you are talking about is the cash the investor has invested in the company. The cash the investor invested isn't part of free cash flow, but it is part of cash on hand.
Ok I understand. So In my initial very basic example, the investment would be the opening cash and the 200 profit would be the cash available to the investor? So thw closing balance would be 700?
Where do I learn financial modeling from? CfI?
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