Depreciation not in Income Statement
Guys, I am building an operating model for J.M. Smucker's - see link for 10K below. Depreciation is not reported in the IS, only in the CFS. My understanding is that it should be captured in SG&A. However, page 26 of the 10K breaks out Selling, Distribution & Administrative, which apparently doesn't include depreciation.
Conclusion: depreciation seems not to be taken into account to arrive at operating income in the P&L. Anyone able to help me out with this? Much appreciated.
Depreciation is taken into account in the P&L, but many companies don't break out wholly or only partially on the P&L their D&A, which can be in COGS or SG&A. The entire D&A figure should be laid out for you in the CFS.
Correct. OP's understanding is wrong; for many manufacturing cos depreciation is in COGS.
Thanks MidtownParkAve and mrb87. Just to confirm: if SG&A is explicitly broken down in the 10k and doesn't include D&A, I can just assume that it is in COGS, even if this isn't mentioned in the 10K? Meaning that I can back out D&A by using the following line items to restate P&L:
(1) COGS = COGS reported - D&A from CFS (2) D&A = D&A from CFS
Thx
No you cannot.
How would you prepare an EBITDA line item in your P&L MidtownParkAve?
Operating income on P&L + D&A on the CFS. When ppl talk about ebitda, they're usually looking for a steady state figure that proxies CF so you should also add back any non-recurring expenses such as restructuring or extraordinary costs above operating income and any goodwill write down (this should be in the CFS as it is a non-cash charge). You may have to read through the notes of the filings to ID these charges as mgmt don't always lay them out for you nicely in the financial section. You should also add back stock based comp which is also laid out for you in the CFS.
Understood, thanks a lot.
I usually do all of the above in order to calculate (steady state) free cash flow for DCF / LBO purposes. I'm currently practicing an integrated three statement operating model. So net income, cash flow, and balance sheet items are not the same as in the 10k for historical years in an operating model since you leave out/add back certain items?
I do not follow your question. Also if you're doing what I laid out to calculate FCF in a DCF, you've been doing it wrong.
I mean, in my operating model I should have the same net income as in the 10k for historical years right?
That means that if I add back non-recurring and non-cash expenses before the operating income line, I end up with an entirely different net income figure, which results in different cash from operating in the CFS, and different balance sheet items since everything flows through... So even for historical years, those items wouldn't correspond to the 10K anymore.
Ebitda is a not a GAAP number so you shouldn't be walking it down to some adjusted net income figure historically and comparing it to GAAP net income in the Ks. Ebitda is used to compare businesses on an apples to apples basis.
Dude, you are overcomplicating this. Don't change how the company is presenting its historical financials.
Just set up a separate tab or a separate set of lines for EBITDA showing how you are getting to it; e.g. EBIT (which you do know from IS) + D&A (from CFS) + Adjustments.
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