Hi all,
Just to preface, I do not have formal experience in investment banking or financial modelling, but I have been teaching myself with resources available online. I am perfectly comfortable with building an operating model (integrated 3 statements) and lbo model, but I am learning how to model cash sweeps.
I have seen examples of when excess cash flow is calculated as follows:
EBITDA Less: Cash interest Less: Cash taxes Less: Capex Less: Mandatory paydown Excess cash flow for cash sweep
where working capital changes is not removed. I tried building the cash sweep in, but my balance sheet went all off until I removed working capital changes in the calculation. Intuitively, I am right to remove the item but another person's model balanced all the same without it.
Can anyone help me with explaining why I should or should not remove working capital changes?
Yes, it is a real cash item after all.
WTF? Never seen W/C being removed for XSCF calculation purpose - and I have been through dozens of SFAs
Try to think about it logically: why would a borrower sweep cash to its lenders before reinvesting the minimum amount necessary for the business on a going concern basis (ie w/c and maintenance capex)? I mean, even from a lender's perspective that would be like shooting in his own foot. Conclusion: XSCF is after change in W/C.
Thanks! That makes sense, exactly what I thought as well.
WTF? Never seen W/C being removed for XSCF calculation purpose - and I have been through dozens of SFAs
Try to think about it logically: why would a borrower sweep cash to its lenders before reinvesting the minimum amount necessary for the business on a going concern basis (ie w/c and maintenance capex)? I mean, even from a lender's perspective that would be like shooting in his own foot. Conclusion: XSCF is after change in W/C.
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