When you are preparing a DCF model and you trying to figure out capital expenditure and change in working capital, do you use current capital expenditure or future expenditure. for example, if you are preparing DCF during 2008. do you use 2008 capital expenditure and 2007,2008 change working capital or you use the forecasted expenditures. Sorry it is my first model and I am still learning.
for 2008 FCF you use 2008 expected cap ex (comes from PPE model) then, for change in WC, use change in Working cap 07-08. NWC is CA - NIBCL and dont include cash in the CA (cash is what you are trying to determine with the DCF/stmt of cash flow projections – apologies if you already know this, but I have seen people include cash in NWC projections). NIBCL - all non interet bearing current liabilities (accts payable will likely be your largest current liability) you have to model out the working cap, then simply take the YoY change… good luck, have fun with it.
Not 100% sure if I got your context right, but when you do DCF, you’re trying to compute what the future cash flows are going to be, then discount them to the present. Therefore future periods are for future expected revenues and future expected expenses (including capex). How you come up with those future revenues and expenditures is where the art of modeling comes in. Most people just take present or recent past values and do some kind of extrapolating. If you have a mature company that is not busy acquiring other firms or starting up new product lines, then recent years’ capital expenditures are probably a relatively good guideline for future capital expenditures (and I remember something about how depreciation ~ capex for mature companies). You’ll still want to adjust for inflation and some growth at about the rate of the economy, though.
bchadwick Wrote: ------------------------------------------------------- > > If you have a mature company that is not busy > acquiring other firms or starting up new product > lines, then recent years’ capital expenditures are > probably a relatively good guideline for future > capital expenditures (and I remember something > about how depreciation ~ capex for mature > companies). You’ll still want to adjust for > inflation and some growth at about the rate of the > economy, though. excellent + 1
Daj224, bchadwick, Thanks, that really helped. I just curious about ppe model. Do you just figure out the compounded growth rate and apply it to most recent figures or actually read 10k and figure out how much they will spend next year in addition to industry , revenue, market share, demand. etc… Thanks
ssdnola Wrote: ------------------------------------------------------- > Daj224, bchadwick, > > Thanks, that really helped. I just curious about > ppe model. Do you just figure out the compounded > growth rate and apply it to most recent figures or > actually read 10k and figure out how much they > will spend next year in addition to industry , > revenue, market share, demand. etc… > > Thanks cap ex drives sales, and vice versa, so most people model cap x as % of sales. I have grappled with this issue before and cap ex, if you are short on time, is modeled: 1. % of sales 2. mgmt guidance (conference calls and SEC filings should have it) 3. keep cap ex growth growing in tandem with industry growth. obviously, if you model a solar company and the industry is grwoing 50%, you dont want to show up with a model porjecting PPE growing at 5%. hope that helps.
that is easy to figure out just multiply future sales with the capital expenditure % of sales. Daj224 you seem like an expert in modeling. Thanks for your help.