When modeling out a PP&E schedule, should you include proceeds from sale of PP&E? I know this would affect the ending balance of PP&E for that period so would you need to show that historically? And would if you do have to include it would you just straight line it for the projected periods?
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Yes, you'd reduce PP&E balance by the sale amount.
On balance sheet, PP&E is recorded at its net amount (sometimes you'll see Gross PP&E along with an accumulated D&A to get net PP&E) Therefore,
Net PP&E, end of period = Net PP&E, beginning of period (simply equal to Net PP&E, end of last period) + PP&E-related Capex during the period (maintenance + growth + acquisition) - D&A for the period - asset sales and PP&E write-downs during the period.
The actual cash proceeds from the sale would accrue to Cash Flow from Investing as a positive amount. Cash has no place on the PP&E schedule.
great thank you for the answer. In terms of forecasting PP&E what would I do with the sale of PP&E going forward? Would I just assume it is 0 or would I straight line the previous years sale amount or would I take a % of total PP&E?
If historically the company has been doing sales of PP&E (not sure for what reason...I'd find this strange), then put the average historical amount. Usually it should just be zero.
great thank you. the company is Raytheon btw
Took a quick look at their 10-K Cash Flow from Investing section. Seems like they do a 500-900mm of capex (PP&E) additions every year but their sales of PP&E number is very low (2-40mm). This is expected, as with any business, because sale of PP&E is obviously not their core business as a defense industry contractor (plus if it were truly their core business it would be recorded under the income statement revenues flowing into CFO net income). Therefore, just put down the average of the past 3 years as the future projected sales proceeds of PP&E. Or you can just zero them out completely; this tiny amount compared to net PP&E base of 3bn+ or $30bn annual revenue is negligible.
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