Finding change in cash
Hi, I want to find the change in cash for a business. 1) finding first the FCF by doing ebitda-capex-change in NWC- taxes 2) Then subtracting (adding)all the debt expenses to get to the change in cash
My question is: I was looking at the CF of the company and under investing activities it has both capex and financial investments. Where do I need to put these financial investments here in the calculation of the change in cash?
In the operating cash flow there’s a thing called “non-cash transactions”. Do I need to add these back to the ebitda when calculating the change in cash?
Thanks a lot
Hello there!
1) When calculating the Free Cash Flow (FCF), you're on the right track. You start with EBITDA, subtract CapEx, changes in Net Working Capital (NWC), and taxes.
Now, regarding your question about financial investments, these are typically considered under the Cash Flow from Investing Activities. They are not included in the calculation of Free Cash Flow. Financial investments could be things like purchase of marketable securities, which is a use of cash, or sale of these securities, which is a source of cash. These are separate from the operational activities of the business, hence they are not included in the FCF calculation.
2) Non-cash transactions are adjustments made in the Cash Flow from Operations section. These are items that affect net income but do not involve actual cash transactions. Common examples include depreciation and amortization. When calculating the change in cash, you would add back these non-cash transactions to net income. However, when calculating EBITDA, these non-cash transactions have already been added back. So, you don't need to add them back again.
I hope this helps! Let me know if you have any other questions.
Sources: Difficult Accounting Technical - IBD, DCF Modeling Course ~ Pre-training text.pdf, https://www.wallstreetoasis.com/forum/investment-banking/need-help-with-cashflow?customgpt=1, Investment Banking Interview Questions - 15 Answers to Land the Job, 1st Yr Banking Analyst Open for Questions
Hi, thanks a lot!
It’s now clear that the financial investments don’t need to be used when calculating the FCF but how do I account for them when calculating the change in cash, after finding tbe FCF?
Thanks a lot
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