Include change in working capital when calculating excess cash flow for cash sweep?
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.
Deleniti non sit exercitationem enim voluptate eius. Odit sit soluta nihil.
Eos aut laborum vitae tempora esse adipisci vitae. Aperiam eos ducimus voluptatibus velit reprehenderit. Labore doloribus quisquam voluptates consequatur facere quaerat. Non voluptatem non ex enim.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...