Comments on: Investment Spreadsheet: How to Use Tutorial

By: Jae Jun

Jae Jun — Thu, 30 Jul 2009 01:16:50 +0000

@ Kent,

Can you clarify what you mean? I dont really understand your needs.

What do you mean by using it for several investment programs?
What do you mean from beginning to end of month?
What do you mean by insert each program?

By: Kent

Kent — Thu, 30 Jul 2009 00:37:27 +0000

Hi there, can this be used for multiply invest programs?
I want a system who go from beginning to end pr month.
It must be so you can insert each program, and the % you get paid and a total calculation of invest vs profit… something like that.

By: Freddy

Freddy — Sun, 26 Jul 2009 12:18:55 +0000

I tested the example with AAPL and don’t get the crazy numbers.
10.7% is the calculated growth when I enter 9% Discount rate. Share value is $83.12

nevermind.. now I see that number.

By: Jae Jun

Jae Jun — Fri, 24 Jul 2009 05:10:54 +0000

(Light bulb goes off) Ding Ding Ding!

You’re absolutely right. Sorry I misunderstood the first time.
The original equation I used for FCF was simply “cash from ops – capex” but then I wanted to adjust it to my version of owner earnings excluding the effects of taxes and other and it seems like I’ve been using the wrong number all along.

Thanks for clearing that up.
Will fix it right away.

Updates coming to everyone ASAP.

By: Greg Goodale

Greg Goodale — Fri, 24 Jul 2009 01:16:49 +0000

But because you are adding a negative number, the negative number reduces the GAAP ‘cash flow from operations’, which already includes the affects of these two amounts. I think the result you are seeking is to add the negative amount back to GAAP ‘cash flows from operations’. Correct me if I am wrong but I believe what you are attempting to do is remove the affects of period to period changes in working capital ‘financing’, i.e. the receipt of receivables and payments of payables (the ‘Other’ amount), along with ‘financing’ of income taxes (i.e changes in deferred taxes) from the true cash that was generated from operations during that particular period. I believe this is the correct approach, so, when you subtract the positive amount you are correct, but when you add a negative amount you are lowering the GAAP ‘cash flow from operations’ by this amount, which has already been reduced by this negative amount. You should be adding the negative amount back to the GAAP ‘cash flow from operations’.

As an example, Titatium Metals (TIE) for the year 2004 had a negative $19.5 million in GAAP ‘cash flows from operations’, and used $23.6 million in cap ex. The combination of Deferred taxes and ‘Other’ was negative at 90.8 million. The FCF computes to a negative $136.8 million, determined by taking GAAP cash flows from operations of a negative $19.5 million plus the negative item of $90.8 million less the capex amount. The problem is that the $19.5 already includes the $90.8. This amount should be added back to get a get a operating cash flow amount of $68.4, which will then result in a FCF of a positive $44.8 million.

By: Jae Jun

Jae Jun — Thu, 23 Jul 2009 07:45:31 +0000

@ Greg,

Thanks for the purchase.
Regarding your question about the FCF formula, I did think of this problem so let me explain how the excel formula actually works.

I overcame this issue by first adding the deferred taxes and other income. Either way, the addition of these numbers will be positive or negative.
I then use the excel IF statement which allows me to use conditions to base my calculation.

So if deferred taxes + other income = negative, then instead of subtracting, I used addition since +- = -.
If deferred taxes + other income = positive, then I just simple subtracted.

Basically the IF statement is:

IF (deferred taxes + other income > 0)
Then (subtract the number)
Otherwise (add the number)

Hope that makes sense.

By: Greg Goodale

Greg Goodale — Thu, 23 Jul 2009 03:13:16 +0000

I recently purchased the investment spreadsheet. Great work!!! – I’m in the process of reviewing some of the formulas, I don’t understand why we are subtracting the aggregate negative balance of deferred taxes and the ‘other’ amount from cash flow from operations. Essentially you are subtracting this amount twice. I believe what you’re trying to do is remove the affects of working capital changes and the effect of the non-cash impact of income taxes from cash flows from operations, which makes sense, however, your formula for free cash flow removes the positive impact of these amounts (correctly) but if these amounts are negative, they are subtracted from the total, which essentially subtracts it twice. Would it not be correct just to use Net income plus depreciation and amortization as ‘cash flows from operations’ from which you subtract capital expenditures to arrive at free cash flows?

By: Jae Jun

Jae Jun — Wed, 22 Jul 2009 17:10:15 +0000

As you know, DCF is the sum of the future cash flows. It is not including any of the current assets into the equation. But what about all of its buildings (if it owns any) or desks, phones, computers, furniture etc etc. It’s all part of the company value.

When a company is liquidating, the current assets will be sold for cash which is why using tangible shareholders equity is a value that should be added and not plugged into the PV formula.

By: Nehemia

Nehemia — Wed, 22 Jul 2009 13:30:11 +0000

Why do you adding last year ‘Tangible Equity’ to the DCF Equation (in ‘Company Valuation’, row ‘Total Value’ (cell B66)) ?

(As i understand, if you want to be more accurate you should assume that the company wind’s-up after the last year of the DCF model and hence to add the Present Value of that cell (?) npv=(discount rate, nper, 0, fv))