So typically the “real world” calculation for FCF uses FCINV as “CAPEX”, or the expenditure on fixed assets. It does not net out the disposition of fixed asset. However in the text i remember reading multiple times about fixed capital investment being netted with dispositions of fixed assets. Then on the afternoon mock in 2009, it asks for FCF, provides both investment in fixed assets and sales of fixed assets under the CFI section, and only uses investment. So wtf, which one do they want us to use?
if a specific outlay is given, per the exam in the notes section use it. if given a B/S use change in gross fixed assets, if given a CF statement use that years investment
Yah that didn’t answer the question though. CF statement was given in my question obviously given my reference to CFI. IT gave both an inflow and outflow though, not just outflow. “acquisition of fixed plant” as well as “proceeds from sale of fixed plant” The notes i have say to use the net of the two, the mock only used the expenditure portion.
I think I read something about this somewhere here, try to search forum.
My understanding is that FCInv = capex - sale of LT assets = change in gross PPE - sale of LT assets so if you are given a B/S, you have to take gross assets2009 - gross assets 2008 to arrive at capex, then look for sale of LT assets and subtract them out. if you are just given capex, that is already representing the change in gross assets so no need to take any delta.
now a question… what if you are provided Net PPE?
add depreciation to get gross PPE
nope you do change in Net PPE + Depreciation Expense = Capex…
yea. i meant for each year take the Net PPE + dep. then take the delta, which gives you capex. so same thing.
You will not be given depreciation for the two years… you will be given Balance sheet for two years, and depreciation in the income statement for current period… just so you are thinking straight!
Well then the mock is wrong, which i suspected.
If a cash flow statement is provided, just look under the CFI section.
I KNOW to look under the CFI section (see the above 20 posts), the point is that the CFI section gave both “investment in fixed asset”, and “proceeds from sale of fixed asset”, and used only the investment portion in the FCF calculation (as opposed to the readings which say to use the net).
markCFAIL Wrote: ------------------------------------------------------- > I KNOW to look under the CFI section (see the > above 20 posts), the point is that the CFI section > gave both “investment in fixed asset”, and > “proceeds from sale of fixed asset”, and used only > the investment portion in the FCF calculation (as > opposed to the readings which say to use the net). Ok, but why would you take into account proceeds from the sale of fixed assets? That is distractor information. The formula instructs us to use FC Inv, not Net FC Inv. This is no excuses material.
because the text makes multiple references to “FCINV” being “net” investment… hence the point of the thread?
markCFAIL: I struggled with the same question. So what’s the consensus? Net FCINV or not?
CFAI book says net
Wow, just checked the Stalla material and guess what? It is net FC. Honestly, I’m starting to get tired of these bullshit formula notations that leave out the detail.