Hi all,
I am working on a mock interview and given a financial model- one that only has BS and IS, and assumption on new Capex and related depreciation. There's no info about existing depreciation. What is the common practice for modeling CF in this case?
Thanks.
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Your IS most likely contains depreciation? Is it up to Net Income or EBITDA?
It doesn't... it is up to Net Income and contains no info of D&A.
If you know historical capex then: fixed assets + capex - depreciation = fixed assets next year. So if you know 3 out of 4, you can calculate the fourth.
If not, I would take an educated guess based on economic life of the assets (high for real estate, low for shop interiors etc)
Yeah I took the educated guess. Thank you Rover-s
How many years of balance sheet do you have?
And what exactly are you trying to solve for / what question are you trying to answer? It isn't clear from your post.
3 years of BS, and I was asked to model the CF based on historical BS+IS, without any info on historical depreciation/Capex
Well if you have 3 years of balance sheet, that will include the PP&E balance. So I think you can make a pretty good estimate of capex by assuming that PPE is depreciating over 5-7 years, and the difference is capex.
For example: 2017 PP&E $100 2018 PP&E $110 Assumed 2017-2018 depreciation: $16.67 ($100 / six years; midpoint of 5-7 years) Implied 2018 capex:$26.67, which is $110-($100-$16.67)
That's new to me. Thank youi!
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