Investing Cashflow
This article explains how Investing cashflows work in Model Reef.
You will learn:
What counts as Investing cashflow.
How capex and asset related cash movements are represented.
How Investing cashflows link to Assets, depreciation and valuation.
Components of Investing cashflow
In Model Reef, Investing cashflows usually include:
Capex
Cash outflows for physical or intangible Assets.
Plant, equipment, property, fit outs, vehicles, software, development costs.
Other asset movements
Any additional long term investments represented via Asset variables.
These are derived from Asset variables and their timing settings.
Link to Assets and depreciation
When you add capex via an Asset variable:
The Balance Sheet records an increase in Assets.
The Cashflow Statement records a capex outflow in Investing cashflows.
The P&L records non cash depreciation over the useful life of the asset.
Depreciation and amortisation do not appear in Investing cashflows. They are non-cash and appear in the P&L below EBITDA.
Investing cashflow and free cashflow
Investing cashflows are a key component of free cashflow calculations:
Free cashflow to the firm adjusts EBITDA and working capital, then subtracts capex.
Heavy investment periods will reduce free cashflow even if operating performance is strong.
Low or negative capex can temporarily boost free cashflow at the cost of underinvestment.
Model Reef's valuation engine uses both Operating and Investing cashflows when computing FCFF and FCFE.
Analysing Investing cashflow
You can analyse Investing cashflow by:
Looking at the level and timing of capex relative to revenue or capacity.
Splitting capex by branch or project using Asset variables in different branches.
Comparing capex across scenarios to test growth and maintenance strategies.
Examining how different capex profiles affect free cashflows and valuation.
This helps in planning expansion, maintenance and financing.
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