Estimating Working Capital Changes and CapEx from Financial Statements
Summary
The document considers whether changes in working capital and capital expenditures can be recovered when a balance sheet is unavailable. It says the available information may be insufficient, but that a simplified change in balance sheet can sometimes be reconstructed from income statement and cash flow statement data. Its accounting example relates property, plant and equipment additions to disposals, impairments, depreciation, and changes in gross and accumulated balances; additions are described as roughly corresponding to CapEx.
The answer stresses that real-world reconstruction is more difficult because disposals, write-offs, impairments, and mergers or acquisitions can affect balances. A second response says CapEx may be taken directly from the cash flow statement when reported, while working capital changes require current asset and liability data or net working capital as a proportion of sales. A sales-based estimate uses the working capital needed to support the next year’s sales, but depends on assumptions and adequate inputs.
Key ideas
- A simplified change in balance sheet may be reconstructed from income statement and cash flow information.
- PPE additions are approximately analogous to capital expenditures, but disposals and impairments affect the calculation.
- Reported CapEx can be taken from the cash flow statement when available.
- Estimating working capital changes requires relevant balance sheet accounts or net working capital as a share of sales.
- A sales-based working capital estimate depends on assumptions about the level needed to support future sales.
Tags
Full text
# How can you find change in working capital and capital expenditures without a balance sheet? # How can you find change in working capital and capital expenditures without a balance sheet? I'm working with the following information trying to work through a valuation exercise and I'm absolutely stuck. How can I find ∆WC and CAPX with this information? ## Answer by David Addison (score 1) https://quant.stackexchange.com/a/35247 You don't provide enough information. Yet, if you provide a little more information it might be possible. In theory -- one may recreate a statement for the source and use of funds (i.e., delta balance sheet) from an income statement and cash flow statement. The following adjustments provides a simplified example of the IFRS balance sheet taxonomy, and it is not significantly different for US GAAP: ``` -(Impairments + Net_Disposals) = NetPPE_New - AdditionsToPPE + DepAmort - NetPPE_Old AdditionsToPPE - Gross_Disposals = GrossPPE_New - GrossPPE_Old Accum_Disposals - Impairments = AccumDDA_Old - AccumDDA_New + DepAmort (AdditionsToPPE - Gross_Disposals) + (Accum_Disposals - Impairments) = (GrossPPE_New - GrossPPE_Old) + (AccumDDA_Old - AccumDDA_New + DepAmort) ``` Note, AdditionsToPPE (above) is roughly analogous to CapEx. Recreating a delta balance sheet becomes a lot more complicated when you enter the real world. The real world is fraught with nuanced accounting adjustments. One must account also for asset disposals, impairments, write-offs, and M&A activity. ## Answer by Andrew Wheeler (score 0) https://quant.stackexchange.com/a/25677 Cap ex can come directly from the CF statement. Looks like you explicitly have it listed as a % of sales. Your change in WC can't be estimated without either corresponding % sales figures of either 1) current asset and current liability accounts or 2) net WC as a % sales. Using #2, you would find the NWC at the end of a year required to support the coming year's sales and calculate the change as the additional investment required to bring the existing WC balance to meet that figure.
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