I get very confused when it comes to calculated fixed capital investment in FCF problems when provided with a balance sheet. Sometimes they give you gross fixed assets from one period to the next, or net fixed assets. Sometimes you need to add depreciation expense from the income statement and sometimes you dont…blah blah blah
Can someone please just provide me with the cold hard rules on how to calculate it depending on the line items they choose to give us in the balance sheet?
FCInv is simply what you invest in terms of cash flows.
If Net PP&E in year N-1 is 1000, and Net PP&E in year N is 1300, you know for a fact that you did not just invest $300 in FCInv. In fact, you invested more, because the $1,300 PP&E in year N accounted for depreciation of the previous net PP&E in year N-1.
If Depreciation expense during year N is $50, then you have invested $350 in FCInv.
If you had the gross PP&E amounts to start with, you would just do: FCInv = (Gross PP&E year N - Gross PP&E Year N-1), since accumulated depreciation is not relevant here.
No Asset sold
FCinv=Net Cash flow from Investing activity= End gross PP&P - begin PP&P
when asset is Sold
Cash Inflow from investing activity = Asset sold value
Cash out flow from Investing activity= Net End PP&P + Depreciation (current year)+sold asset book value (total sale-gain)-Net Begin PP&P
FCinv (Net Cash flow from investing) = Cash out flow from Investing activity-Cash Inflow from investing activity
Also NI - Gain+loss from sale of asset = Adusted Net Income
dont forget to subtract gain from Opeating cash flow, since this is not an operating activity.
Thanks guys, that’s a lot better, really appreciate it!