Depreciation is broken in my model, please advise (im learning)
Hey guys. need some help here doing depreciation waterfall for Paypal(im learning pls be nice)
Built out this depreciation waterfall i learned when analyzing apple.
Capex estimates are from Refinitive (2021-23 are reported ppe depreciation in 10k).
AVG useful life = 2023 dep / gross ppe
Depreciation 2024 ended up being 231m, down from 850 the year before.
If Depreciation stays constant (with this low capex), paypal has no no PPE in a year and a bit. Dont really understand how this is possible.
Did i make a mistake or am i missing something?
Based on the most helpful WSO content, here are some insights and advice on your depreciation model:
Depreciation Calculation:
Useful Life Assumption:
CapEx and Depreciation Relationship:
Model Consistency:
Common Mistakes:
Detailed Schedule:
By addressing these points, you should be able to refine your depreciation model and ensure it accurately reflects PayPal's financials. If you continue to face issues, consider revisiting the WSO financial modeling courses for more detailed guidance.
Sources: A company uses $50 of cash to buy PP&E, how does the EV change?, https://www.wallstreetoasis.com/forum/investment-banking/need-help-with-cashflow?customgpt=1, Got asked this question in an interview, DCF Modeling Course ~ Pre-training text.pdf, Preparing for an IB internship
Trying to hep you here. Seems like you're using WSP's template from the APPL case study. I'm a little confused, you are saying PP&E will zero out in 1.5 years but in your schedule it`s growing to 5bn by the final year...
Also it would be mathematically impossible for it to zero out because you are taking historical PP&E and depreciating it over time (that will zero out eventually, sure) but the future D&A is forecasted as a % of new capex (or new capex / useful life). So as long you have new capex, it can`t really become zero (unless there are major asset sales or write-offs).
Can you expand a bit?
With regards to the historical D&A: Pull up the Depreciation notes from the 10-k, look for a breakdown. Are you sure the 822, 846, 846 is PP&E-related D&A?
Yeah i meant if it was historically consistent at ~800m. The PPE DnA i reported was found in the 10k note to financials regarding ppe, so i believe it to be consistent. I just dont understand how there can be such a big dropoff to be honest.
In a case like this, would it be better to just tie DnA to to revenue to get historical % and straightline average?
Can i dm?
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