Core Operating Accounts Flashcards
Cash and Cash Equivalents
Yes but less than 2% of Sales only
A/R
Yes
Deferred Income Tax Assets
No
Other Current Assets
Yes
Net PP&E
Yes
Goodwill
No
Other Intangible Assets
No, unless it’s software
Restricted Cash
Yes, if it’s tied to Operations
Investments
No
Deferred Income Tax Assets
No
Post retirement benefit Assets
No
Other Noncurrent Assets
Yes
Short Term Debt
No, Financing Option
A/P
Yes
Accrued Salaries
Yes
Self Insurance Reserves
Yes
Deferred Income Tax Liability
No
Post retirement Benefit Obligations
No
Other Current Expenses
Yes
Long term Debt
No
Self Insurance Reserves
Yes
Deferred Income Tax Liabilities
No
Post Retirement Benefit Obligations
No
Other Noncurrent Liabilities
Yes
Equity
No, nothing from Equity
NOPLAT
Net Operating Profits less Adjusted Taxes
FCF=
NOPLAT-Net Investment
NOPLAT - (NOPLAT * IR)
NOPLAT * (1-IR)
NOPLAT * (1 - (g / ROIC)
Net Investment=
Invested Capital t+1 - Invested Capital t
ROIC=
NOPLAT / Invested Capital
Investment Rate=
Net Investment / NOPLAT
WACC
Weighted Avg Cost of Capital; minimum rate of return investors expect to achieve
VALUE=
FCF t1 / (WACC - g) assumes the firms sales and NOPLAT grow at a constant rate - and-
NOPLAT t1 * (1 - (g / ROIC)) / (WACC - g)
IR
Investment rate
g=ROIC * IR, so IR = g / ROIC
Key Concept of Leverage
Leverage by itself does not increase the cash flows thus it does not create value
