I’m looking into this company that owns a few different types of stores and recently have begun to sell off one chain. This should be done relatively soon (within the next year or so), but I’m trying to go back to the last 4 quarters and calculate a normalized CFO. On their income statement under operating expenses they lists ‘gains from sale’ as negative amounts so they are selling for gains. On the CFO there’s a line for ‘gains on sale’ and these are also negative. On the CFI side, there’s a line called ‘proceeds from sale’ and these are positive. 1. This is probably a simple question for some of you, but why are these gains listed as negative amounts on the CFO side? Isn’t this a cash inflow? 2. If I want to see what a normal CFO run is, then I should add back these gains to the total right? So if CFO was 40 and included in there was a ‘gains on sale’ line of -15, then a sort of normal CFO would be 55 right? 3. If I’m dealing with FCF, I saw one model where instead of adding back ‘gains on sale’ to CFO they left it unadjusted and then did: CFO - CapEx + add back ‘proceeds from sale’ Is there a correct way of doing this or is it more subjective? Like instead of doing it like the model, I adjust CFO first just for the gains? I’m leaning towards doing it the way like in the model, but I was just curious if there were any other ways.
Here is a big picture question to consider: Is the company in the business of selling off stores? No, the company is in the business to operate stores. If you agree with the above, gain/loss from restructuring related divestiture may not be considered operating and should be excluded from normalized CF.