It's 2am and my DCF model won't work

(-) Change in acct rec. = 3.0 (-) Change in inv = 0.1 (+) Change in acct pay = 1.6 (+) Change in accrued salaries = 1.8 (+) Change in accrued expenses = 2.0 Net change in WC = 2.3

hope you got this on time mate

Maybe I work for "jefferies" too, but prepaids are normally considering working capital in my book. The only things that are definite exclusions are obviously current maturities (add back to long-term debt), cash, and possibly deferred taxes

mates thank you all for the help. Just echoing what Solaxun said, can anyone explain the rationale for excluding deferred taxes and prepaid expenses in the NWC calculation?

Cuz they don't reflect on cash changes relevant to operations in the current accounting period, rather past/future periods.

So why is it that we don't consider deferred taxes?

Is it because it's tax (which isn't directly part of operations) or is it because it's deferred (which doesn't reflect the current accounting period)?

Generally speaking, we don't include deferred taxes in our working capital calculation. It doesn't reflect on the company's operations. It will still be used in the calculation of cash flow from operations, but it will be separate from the WC calculation.

It's essentially showing the difference between GAAP and IRS taxes (taxes payable vs. actual cash taxes paid), which is what pulls it out of WC.

I can agree with the removal of deferred taxes, since they eventually should not impact cash flows, but i still think prepaids are typically included in working capital calcs as "other ca" or "other cl" in most models, no? Also the deferral of tuition is probably included.

what a bunch of lifeless geeks..sorry but its true

We generally include prepaids in WC calculations.

Batemenan is probably a year 1 at a fund of funds, maybe mad because his MD yelled at him one too many times for not being a "lifeless geek" and constantly !@#$%!@ up.

1) Prepaids are included in WC Calculations along with Deferred Revs 2) The prepaid is +2.3 but the deferred tuition rev is -2.3 ...

To clarify

(-) Change in acct rec. = 3.0 (-) Change in inv = 0.1 (-) Change in prepaid = 2.3 (+) Change in acct pay = 1.6 (+) Change in accrued salaries = 1.8 (+) Change in accrued expenses = 2.0 (+) Change in deferred rev = 2.3

-3.0 - 0.1 - 2.3 + 1.6 + 1.8 + 2.0 + 2.3 = 2.3

You left out prepaid tuition in the CL section of 2.5 which results in a net change of 4.8, not 2.3.

sorry, could someone explain fully why deferred tax (both assets and liabilities) shouldn't be included in working capital? it does impact your cash flow (if your deferred tax assets go up, you've paid more taxes in cash than you've recorded). thanks for any insights.

See this : http://en.wikipedia.org/wiki/Working_capital

I've heard of many reasons why deferred taxes are left out

1) It's not always taxes deriving from operations and distorts the picture (usually coming from depreciation / capex) 2) Deferred taxes are not always "current" - so they're not part of current asset or current liability - this is true for lots of retailers

Hey op - how is deferred tuition revenue different from prepaid tuition? ...

I assume deferred tuition revenue is revenue that you've been paid but services have not been rendered? ... same as prepaid tuition

If deferred tuition revenue is just revenue you HAVE NOT been paid but services rendered ... that's just accounts receiveable and is an asset?

Im a EU student and I can't swear that this applies for US GAAP (although I think so). Deferred taxes shouldnt be included in WC because it refers only to the group; not the legal entities. That should imply that deferred tax liabilities normally arise as a result of taxable difference in the value of assets in the group and the legal entity. For example, intangible assets that only arise from acquisition (say, brands). As for deferred tax assets, they can arise either from book values in group being lower than in the legal entities, resulting in a tax deductible diffference, or as a result of a loss in one of the legal entities and hence a loss-carry-forward. Since neither of these actually affect paid tax, they should not be included in WC.

Hope this contributes.

Solaxun,

"You left out prepaid tuition in the CL section of 2.5 which results in a net change of 4.8, not 2.3."

I actually think the answer is in what i mentioned about why defered tuition revenue and prepaid tuition are 2 separate entries - 1 of those is a non-cash item as in i think deferred tuition revenue is just like customer deposits and don't count as a change in WC

that's why its not included in final calculation

The company is Devry. From their 10K, deferred tuition is: "DeVry University and Chamberlain College of Nursing students who receive employer tuition assistance may choose from several deferred tuition payment plans. Students eligible for tuition reimbursement plans may have their tuition billed directly to their employers or payment deferred until after the end of the session."

So I'm confused ...

from an accounting point of view ... deferred revenue here should be the same concept as prepaid tuition ...

Prepaid tuition = money already collected, service not yet rendered. Deferred revenue = service currently being provided, money not yet collected. Am I right?

Right - if that's what it is .... then the service being provided money not collected ... thats same as accounts receiveable then and is an asset

clearly its being treated as a liability b/c the two are similar

sorry i dunno enough about this line of business but those are 2 two points that are contenitious (hence the difference in NWC)

You can just ask teh research analyst ...

On the other stuf, the prepaids, etc are pretty clear that tehy should be included