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Learn Accounting for CapEx, Assets & Reconciliation to Net Cash Flow | Building a DCF Valuation Model in Excel
Mastering Discounted Cash Flow Analysis with Excel
course content

Course Content

Mastering Discounted Cash Flow Analysis with Excel

Mastering Discounted Cash Flow Analysis with Excel

1. Introduction to Business Valuation
2. Understanding Discounted Cash Flow (DCF) Analysis
3. Cash Flow Forecasting and Discount Rate Fundamentals
4. WACC, Terminal Value & Sensitivity Analysis
5. Building a DCF Valuation Model in Excel
6. Practical DCF Case Study – Company Valuation in Action

book
Accounting for CapEx, Assets & Reconciliation to Net Cash Flow

While line items like revenue or capital expenditures may take center stage in a financial model, small balance sheet movements often carry meaningful weightβ€”especially when calculating Unlevered Free Cash Flow (UFCF). This chapter dives into one such area: changes in Other Assets and Other Liabilities.

These categories often include miscellaneous items that don't fit into traditional buckets like inventory or accounts payable. They might represent prepayments, deposits, legal reserves, or intangible accruals. Though individually minor, together they can shift your cash flow in or out.

In the context of UFCF, here's what matters: we care about the net change in these items from one year to the next. This change either consumes cash (a use) or frees up cash (a source).

  • If Other Assets increase, the company used cash to acquire them β†’ negative impact on UFCF;

  • If Other Liabilities decrease, the company settled obligations using cash β†’ also a negative impact.

The proper adjustment is:

ChangeΒ inΒ OtherΒ WorkingΒ Capital=(OtherΒ Assetsprevβˆ’OtherΒ Assetscurr)+(OtherΒ Liabilitiescurrβˆ’OtherΒ Liabilitiesprev)\text{Change in Other Working Capital} = (\text{Other Assets}_{\text{prev}} - \text{Other Assets}_{\text{curr}}) + (\text{Other Liabilities}_{\text{curr}} - \text{Other Liabilities}_{\text{prev}})

This formula uses signs carefully. Increasing assets or decreasing liabilities generally reduce UFCF.

These changes may not dominate your valuation, but they are a key part of accuracy. Overlooking them could lead to inflated free cash flow and a misleading enterprise value.

Small details matter. Even seemingly obscure line items like "Other" can significantly affect how much cash a business actually generates and how we value it.

Everything was clear?

How can we improve it?

Thanks for your feedback!

SectionΒ 5. ChapterΒ 8

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course content

Course Content

Mastering Discounted Cash Flow Analysis with Excel

Mastering Discounted Cash Flow Analysis with Excel

1. Introduction to Business Valuation
2. Understanding Discounted Cash Flow (DCF) Analysis
3. Cash Flow Forecasting and Discount Rate Fundamentals
4. WACC, Terminal Value & Sensitivity Analysis
5. Building a DCF Valuation Model in Excel
6. Practical DCF Case Study – Company Valuation in Action

book
Accounting for CapEx, Assets & Reconciliation to Net Cash Flow

While line items like revenue or capital expenditures may take center stage in a financial model, small balance sheet movements often carry meaningful weightβ€”especially when calculating Unlevered Free Cash Flow (UFCF). This chapter dives into one such area: changes in Other Assets and Other Liabilities.

These categories often include miscellaneous items that don't fit into traditional buckets like inventory or accounts payable. They might represent prepayments, deposits, legal reserves, or intangible accruals. Though individually minor, together they can shift your cash flow in or out.

In the context of UFCF, here's what matters: we care about the net change in these items from one year to the next. This change either consumes cash (a use) or frees up cash (a source).

  • If Other Assets increase, the company used cash to acquire them β†’ negative impact on UFCF;

  • If Other Liabilities decrease, the company settled obligations using cash β†’ also a negative impact.

The proper adjustment is:

ChangeΒ inΒ OtherΒ WorkingΒ Capital=(OtherΒ Assetsprevβˆ’OtherΒ Assetscurr)+(OtherΒ Liabilitiescurrβˆ’OtherΒ Liabilitiesprev)\text{Change in Other Working Capital} = (\text{Other Assets}_{\text{prev}} - \text{Other Assets}_{\text{curr}}) + (\text{Other Liabilities}_{\text{curr}} - \text{Other Liabilities}_{\text{prev}})

This formula uses signs carefully. Increasing assets or decreasing liabilities generally reduce UFCF.

These changes may not dominate your valuation, but they are a key part of accuracy. Overlooking them could lead to inflated free cash flow and a misleading enterprise value.

Small details matter. Even seemingly obscure line items like "Other" can significantly affect how much cash a business actually generates and how we value it.

Everything was clear?

How can we improve it?

Thanks for your feedback!

SectionΒ 5. ChapterΒ 8
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