Asset Variables
This article explains Asset variables in Model Reef.
You will learn:
What an Asset variable represents.
How Asset variables handle capex, opening balances and depreciation.
How Assets affect P&L, Balance Sheet, Cashflow and the Cash Waterfall.
Patterns for modelling simple and more detailed asset behaviour.
Asset variables represent things the business owns or invests in that have ongoing value, rather than one off expenses.
1. What an Asset variable is
An Asset variable captures:
New capital expenditure (capex) such as equipment, fit outs, software, vehicles, plant and property.
Existing assets brought into the model via opening balances.
The depreciation profile of those assets over time.
Each Asset variable has:
A value for the asset or capex amount.
A start date and possibly an end date for capex programmes.
A depreciation method and useful life.
A category such as
Assets - Property,Assets - Equipment,Assets - Intangibles.
2. Asset rules in the P&L
In the P&L:
Asset variables generate Depreciation expense based on the selected method and life.
Depreciation reduces EBIT but does not consume cash directly.
There is no direct capex expense line in the P&L because capex is capitalised as an asset.
Depreciation is the non cash mechanism by which capitalised assets are expensed over time.
3. Asset rules in the Balance Sheet
In the Balance Sheet:
New capex increases the Assets balance at the time of purchase.
Depreciation reduces the carrying amount of the Asset over its useful life.
Model Reef tracks the net carrying value (asset minus accumulated depreciation).
Opening asset balances can be loaded via imports or manual entry.
The engine ensures that asset balances move consistently with capex and depreciation.
4. Asset rules in the Cashflow Statement and Cash Waterfall
In the Cashflow Statement:
Asset variables drive Investing cashflows:
Capex appears as an outflow when cash is spent.
Depreciation does not show in cashflow because it is non cash.
In the Cash Waterfall:
Capex appears as a separate line item after operating cashflows and working capital movements.
Depreciation is not shown in the waterfall (it is a non cash P&L item).
Capex is a key input to free cashflow to the firm and free cashflow to equity in the valuation engine.
5. Opening balances vs new capex
You can model assets in two ways:
Opening balances
Represent assets that already exist at the model start date.
You input the carrying amount and remaining life.
Model Reef calculates future depreciation and leaves cash unaffected at the start date.
New capex
Represent new investments made during the forecast.
Model Reef increases Assets and reduces cash when capex occurs.
Depreciation is calculated from the date the asset enters service.
You can mix both within the same model and branch.
6. Common asset modelling patterns
Examples:
Expansion capex
New stores, clinics, plants or venues modelled as capex variables in the relevant branch.
Depreciation allocated to that branch's P&L.
Sustaining capex
Recurring capex to maintain existing capacity.
Schedules or drivers used to link capex levels to revenue or capacity drivers.
Intangible assets
Capitalised development costs or software.
Amortisation treated similarly to depreciation if required.
Model Reef does not currently provide automated disposal logic, but you can model disposals by adjusting balances manually or with offsetting variables.
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