Finance Interview Challenge Question #13 [2021]

[@livhyeju7268]

Thanks for the challenging questions! This is entertaining...

[@enemyonscythe]

Your challenge questions are great and your explanations are easy to understand!

[@FinanceableTraining]

Glad you think so!

[@woodstv17]

Make more challenge questions please. I love them!!!

[@alitahsili]

Thank you for all the challenging questions. Please keep uploading

[@FinanceableTraining]

Hoping to get some out soon. Sorry it’s been so long

[@alisherzhakaibekov1620]

Why did we not add back the CapEx?

[@FinanceableTraining]

Here's a quick video answer: www.loom.com/share/eb85fdacab514fd784426b637e88cc4d

[@flaviohns1]

One thing that i dont get it its about the CNWC. The Change was -10, so you generated 10 dollars in cash by reducing your Working Capital, so shouldn't you subtract the 10 dollars from CFO and then subtract the D&A to get the implied Net Income ?

[@FinanceableTraining]

You're heading down the right path. Let's think about AR. If we sell something for $100, but the client doesn't pay...we still record both $100 Revenue and $100 of Accounts Receivable. In real life though, we haven't collected any money. So, Net Income would be +$100 (let's leave taxes out to keep it simple) and we didn't make any money...so we have a ($100) adjustment to make to get back to the actual cash we generated. Let's say we have no sales in the next year, but we collect the $100 of A/R. In that case, net income would be $0, and NWC goes down by $100....but we show no cash generated. So, we make a +$100 adjustment to reflect the fact that we actually collected $100 in cash. Does that make more sense?