Aswath Damodaran 198
The cash flow view of this project..
To get from income to cash flow, we
"added back all non-cash charges such as depreciation
"subtracted out the capital expenditures
"subtracted out the change in non-cash working capital
0 1 2 3 4 5 6
Operating Income after Taxes -$165 -$77 $75 $206 $251
+ Depreciation & Amortization $537 $508 $430 $359 $357
- Capital Expenditures $2,500 $1,000 $1,269 $805 $301 $287 $321
- Change in Working Capital $0 $0 $63 $25 $38 $31 $16
Cashflow to Firm -$2,500-$1,000 -$960 -$399 $166 $247 $271
This converts earnings to cash flows.
Derpreciation and amortization are just two of the most common non-cash
charges.
Any capital expenditures (whether initial or maintenance) need to be subtracted
out.
It is only the change in non-cash working capital that needs to be subtracted out.
