Capex revolver

AdaWong's picture
Rank: Chimp | 8

Hi all,
I am doing a LBO case and I found that the capex is financed with a revolver. I want to make sure whether a debt-financed capex will still decrease the FCF of the firm or we shouldn't deduct capex when calculating FCF. All discussions are welcomed. A million thanks in advance. :)

Comments (5)

Mar 20, 2020

i believe fcf calculation doesn't change (aka still need to deduct capex, regardless of how it's funded). Technically, you can't say that the revolver is drawn specifically to fund the capex right? It's just drawn because total cash needs exceeds cash generated that year. This is my two cents

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Most Helpful
Mar 21, 2020

Depends on how detailed you want your model to be. The revolver is going to have a different interest rate than cash on the balance sheet or the loan used to acquire the company. Technically what you'll want to do is increase the revolver balance by the amount of the CapEx less any available cash on hand. It will essentially go something like this for the balance sheet:

Revolver Balance Increases
Cash Balance Increases
[CapEx is Spent]
Assets Increase
Cash Balance Decreases

The impact to cash flow is that you have an increase in cash due to the revolver draw and an equal decrease in cash due to the CapEx. There is no immediate net cash impact but there is an impact over time.

    • 3
Mar 21, 2020

Your answer is highly appreciated. Thank you. Just to make it clear. FCF=NI+non-cash expense-change in WC-capex, so you don't need to subtract Capex because it's a non-cash item that is funded with revolver debt in this senario and it does not affect cash. Is my interpretation right? Thanks again. Have a nice day :)

Mar 21, 2020

Sorry I wasn't fully clear. You're trying to skip steps that you cannot skip. CapEx is a cash item that needs to be subtracted. However, there is an equivalent increase in cash from financing activities (drawing on the revolver) that nets out to $0.00. So while you will get the same final answer if you just don't subtract the CapEx, your balance sheet is going to be wrong because both your assets and your revolver balance will not reflect the CapEx expenditure. This will impact you in later periods because you will need to depreciate the CapEx and pay interest/principle on the revolver balance.

    • 3
Mar 21, 2020
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