When does CAPEX come in?
Hello monkeys,
I have a question that I can't find a definitive answer to. I'm studying how the three major financial statements are connected.
I have Net Income = Revenue-COGS-SG&A-Operating expenses-D&A-I&T
To my knowledge, Net Income flows into CFS in CF from operation, where
FCFF= NI+I(1-t)+D&A+non-cash expenses-CAPEX - increase in NWC
or FCFF=EBIT(1-t)+D&A+non-cash expenses-CAPEX - increase in NWC
I understand up to this point. What I don't understand is, why the (Net Income(from I/S)-Dividend) flows into Retained earnings in B/S.
Shouldn't we also subtract CAPEX from (Net Income-Dividend), and add it to retained earnings rather than (Net Income-Dividend)? Since money spent on CAPEX isn't available to shareholders, it's hard to make sense of why Net Income directly flows into retained earnings on B/S. I'd much appreciate clarification on this!
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