Re: Debt Extinguishment - Equity offered
Thank you for your inquiry. Can you clarify the corporate structure as well as the exact flow. With all the "Company" and "XYZ" reference, it's not straightforward to follow the ownership structure (to determine consolidation requirements) and ultimately the flow of funds. Howev... Thank you for your inquiry.
Can you clarify the corporate structure as well as the exact flow. With all the "Company" and "XYZ" reference, it's not straightforward to follow the ownership structure (to determine consolidation requirements) and ultimately the flow of funds.

However, if we took a guess from your actual question at the bottom, it seems as if the debt is gone in place of more stock. If so, here's how we would entre this transaction (and YES CFS impact, although nets out):

1) under our debt sweep, in your mandatory payment assumptions, set it equal to negative beginning balance. this effectively wipes out the bonds
2) in CFS, under stock issued, enter the same amount from #1 above; make sure to input this as a positive number.
NET IMPACT at this point: Cash Avaialble / Required Before Debt is now higher (since cash wasn't actually received) and gets negated out at the top of the Debt Sweep in the net calculation of Cash available (row 12 from class) due to the mandatory payment.

BS IMPACT: This will then automatically flow into APIC on the BS and debt goes down, abiding by double entry accounting.

Please do not forget to increase number of shares outstanding to reflect new capital structure. Read More

Re: Estimated Taxes
A saw a sort of rule of thumb while on-line --- in order to determine actual cash taxes (as in the actual amount paid to the government). The reason why I have been asking about this is that, cash taxes are very commonly used in a the FCF calculation in my field that usually goes as follows: (E... A saw a sort of rule of thumb while on-line --- in order to determine actual cash taxes (as in the actual amount paid to the government).

The reason why I have been asking about this is that, cash taxes are very commonly used in a the FCF calculation in my field that usually goes as follows: (EBITDA)-(INTEREST)-(CAPX)-(Change in WORKING CAPITAL)-(CASH TAXES) - (OTHER) = FCF

Their approach below is to......Start with book taxes from the income statement. From there, either add the year over year increase in the company's deferred income tax liability (or subtract increase in the company's deferred tax asset) ... etc...

Anyway, here is the actual blurb.......

"How Do We Calculate a Company's Cash Taxes?"

Advanced Approach. In this approach, we make a number of detailed adjustments.

1. Book taxes. We start with a company's income tax provision found on the income statement.

2. Change in deferred taxes. Next, we add the year-to-year increase in a company's deferred income tax liability (or subtract the increase in a company's deferred tax asset). These line items can be found on a company's balance sheet. However, sometimes, this liability is not separately broken out. In those cases, there are two alternate sources for a company's change in deferred taxes:

"Adjustments to reconcile net income to net cash provided by operating activities" in the "Cash flows from operating activities" section of the Cash Flow Statement. A deferred tax liability occurs when a company pays less in cash taxes than it reports in book taxes. Thus, an increase in a company's deferred tax liability represents a source of cash. Conversely, a deferred tax asset occurs when a company pays more in cash taxes than it reports in book taxes. Thus, an increase in a company's deferred tax asset represents a use of cash.

The Income Taxes section of the Notes to the Consolidated Financial Statements, where the 10-K will list the "components of the provision for income taxes". We subtract the sum of the annual U.S. and Foreign deferred income taxes from a company's income tax provision. When annual U.S. and foreign deferred taxes are positive, the company has increased its net deferred tax liability, which reduces the tax onus. Conversely, when annual U.S. and foreign deferred taxes are negative, the company has increased its net deferred tax asset, which increases the tax onus. (Note: the sum of U.S. and Foreign deferred income taxes should be identical to the number in the Cash Flow Statement.)


Do you agree with this approach or no? Or even partially?

Thanks Read More

WST Macro Problem
Hi,

My WST Macros (3.2.5) aren't working in Excel 2003. I have the Capital IQ plugin installed as well, as well as a couple of other plugins and addins. Is there a way to disable them when necessary and then re-enable them when needed? I would like to use the WST Macros primarily.

Thanks.

Working Capital in FCF for Valaution Purposes
I would like if I may, to get your insight on why Changes in Working capital are relevant to calculating FCF for valuation purposes as I currently hold the opinion that it is largely not and would appreciate your insight. In calculating Working capital for valuation purposes text books focus on cur... I would like if I may, to get your insight on why Changes in Working capital are relevant to calculating FCF for valuation purposes as I currently hold the opinion that it is largely not and would appreciate your insight.

In calculating Working capital for valuation purposes text books focus on current liabilities (net of cash) and Current liabilities ( all non-interest earning debt, but including Supplier credit, accounts payable and accrued items (salaries, taxes etc)).

For me at least, it makes sense to measure changes inventories because it represents cash tied up-within firm that may be crucial to its operations (almost like a form of capex especially for the retail sector). Moreover, the value of inventories may appreciate representing an asset gain or conversely depreciate, or never be utilized in sales (in which case would constitute an expense). All of which would affect the value of the firm

However (and my question is) why are changes in receivables and payables included in free cash flow ?

Effectively a Receivable is an interest free loan to made to the customer while a payable is more or less credit extension by a company’s suppliers. In the case of receivables I view them as earnings in transit, where the cash here is actually rightfully owned by the firm. In the case of Payables I see this as largely interest free borrowings but more importantly cash that is not owned by the firm.

It is my observation that increase in accounts payable overstate FCF and increases in accounts receivables understate FCF.

If I were looking at this from a credit or liquidity perspective – factoring both makes sense.

However, if I am looking at this from an Owner Earnings Perspective, then changes in payables and receivables I believe distort the value of the firm.

This is the impression I have received from reading Berkshire Hathaway’s 1986 Chairman’s letter to Shareholders. Where Warren Buffett purposes:

Owner earnings = Net income + depreciation & amortization +/- one-time items - capital expenditures Read More

Hedge Fund - why the double counting ???
isn't the SHORT & LONG(from SHORT) exactly the same (in & out) ? so why are we double counting them when we calculate the Total Invested Capital?????