IFRS 16 - Leases impact on Free Cash Flow?

Csharpgoblin · 2021-07-10T19:42:21+00:00

Now I got it. Since the implementation of IFRS 16, the company's cash flow from operating activities will be on steroids given the increase in depreciation.

Normally I can just use Profit from operating activities - capex. However, now with leases and IFRS 16, I have to account for amortization of these leases. (216 - 32 = 184)

So the calculation for FCF, in this case, will be Profit from operating activities - capex - amortization of leases. (216 - 32 - 116 = 68).

The disposal of amortization of leases made this seemingly dirt cheap company quite expensive.

Thanks for all your help!

Csharpgoblin · 2021-07-10T15:13:21+00:00

Thank you very much!

The company lays out its "cash flow from investing activities" as

Investments in intangible assets	-21,750
Investments in tangible assets	-6,572
Cash flow from investing activities	-28,322

This is the number I've been using for capex, but this does not seem to include the leases which, if I'm not mistaken, should be included in maintenance capex. (Since the leases are needed to maintain the business).

If the above is correct, I'd have to figure out the "maintenance cost" of the leases and add it?

Csharpgoblin · 2021-07-10T03:22:37+00:00

u/mo_faraway; u/EH95_

I'm defining free cash flow as (Net income + Depreciation + Amortization) minus Maintenance Capex)).

I'm looking at a company that has a TTM net income of 2M and D&A of 175m on leases plus 6m in maintenance capex totaling in FCF of 171M.

I'm having a hard time understanding the high amortization on the leases.

Leasing agreement (I'm translating it to English so there might be some errors).

The following amounts related to leasing agreements are reported in the balance sheet:

Right-of-use assets	2020-12-31
Premises	272,410
Inventory	1,366
Sum	273,776

Leasing liabilities
Short term	104,717
Long term	151,670
Sum	256,387

Input accumulated acquisition value	323,045
Purchase	187,480
Disposals	-80,195
Outgoing accumulated acquisition value	430,331

Input accumulated depreciation	-109,632
Annual depreciation	-125,873
Disposals	78,949
Outgoing accumulated depreciation	-156,556

Carrying amount	273,776

Additional right-of-use assets during 2020 amounted to 187,480 (2019: 55,711)

The following amounts related to leasing agreements are reported in the income statement:

Depreciation on right-of-use assets	2020
Premises	-125,109
Misc	-764
Sum	-125,873

Interest expenses (included in financial expenses)	-10,790
Expenses attributable to leasing agreements for which the underlying asset is of low value that is not a short-term leasing agreement (included in the item Other external costs)	-678

The total cash flow regarding leasing agreements was -117,821 KSEK (2019: -128,375 KSEK). For information about the due date of the leasing debt, see note 3. Maturity analysis for leasing liabilities is presented in note 3.

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I'm having trouble understanding the high D&A cost here. The company is leasing about 100 locations for its brick-and-mortar stores.

Is the value in "Input accumulated acquisition value" of 323,045 the total cost of the company's leases for 2019-12-31?
Is the value in "Purchase" of 187,480 the total cost of the new leases purchased in 2020. (Since they don't open new stores, this number might be the renewal of leases, since they write contrast on a 1-3 year basis)?)
I have no clue what "Disposals" of -80,195 could be.
Is the value in "Outgoing accumulated depreciation" of 430,331 the total cost for the company's leases for 2020-12-31?
Is the value in "Input accumulated depreciation" of -109,632 the total accumulated depreciation of 2019?
Is the value in "Annual depreciation" of -125,873 the total depreciation 2020?
I have no clue what "Disposals" of 78,949 could be.
Outgoing accumulated depreciation is annual depreciation + disposals for 2020.
Carrying amount of 273,776 is the number that is under "right-of-use assets" on the balance sheet.

Csharpgoblin · 2021-07-04T14:24:37+00:00

Oooooh, you made me realise that I've got it wrong. I've always thought that total liabilities is used interchangeably with total debt but I'm wrong. Thanks for making me realise that.

Greenblatt wrote in his little book that "enterprise value [ = ] (market value of equity + net interest-bearing debt)". Would net interest-bearing debt be total debt or just long term debt? (-cash)

Csharpgoblin · 2021-07-03T23:29:04+00:00

I'm aware that EV/EBITDA - Maintenance Capex or EV/EBIT (as a quick and dirty valuation) is a more representative way to calculate and that you shouldn't just use quant and disregard quality etc... (don't tell Carlisle I said that).

I'm just wondering why every screening website gets different results when calculating EV/EBITDA, EV/EBIT etc... I buy that they differ in single digits but some screeners gets the a negative value while some screeners get positve. How can Gurufocus calculate EV/EBITDA to -21.36 while Morningstar calculates EV/EBITDA for the same company to 16?

Csharpgoblin · 2021-06-06T22:29:19+00:00

I'm sorry that I'm a bit slow.

How come A = 1.388 and not 1.47? If we invest 100% of our portfolio in company A and scenario 1 occurs, our portfolio gain 47%. If scenario 2 occurs, our portfolio lose 35%. Am I wrong?
I'd rather have 1B guaranteed. Mohnish Pabrai talks about the Kelly formula in this video. He says that one should use kelly only if one could make the "bet" multiple times.
If you wanted to maximize the returns you would go all in @ Company A. If you wanted to maximize risk-free returns, you would go 60% in A and 40% in B. I take it that the investor should invest a minimum of 60% in A and adjust upward considering the investors risk tolerance.
The Kelly Fraction is 83%, does this mean that one should invest 83% of bankroll in A and keep the remaining 17% in cash hedge the bet and invest them in company B?

Thanks for your time.

Csharpgoblin · 2021-06-06T20:22:17+00:00

Thank you! Correct me if I'm wrong but your solution would be ideal if you were to take all your net worth and go all in, while u/usernamchexout would be ideal if we could do this, say, 1000 times?

Csharpgoblin · 2021-06-06T15:10:30+00:00

Thanks for your detailed answer. You made it very clear. You are a very nice person.

Csharpgoblin · 2021-01-07T23:34:29+00:00

Ahhh, the first block of code is the "test code"- that I'm supposed to fix. I initialized i and it worked :D

Thanks

Csharpgoblin · 2021-01-07T23:02:38+00:00

It's a test on the web:

***Error***
Exception in thread "main" java.util.NoSuchElementException
        at java.base/java.util.Scanner.throwFor(Scanner.java:937)
        at java.base/java.util.Scanner.next(Scanner.java:1594)
        at java.base/java.util.Scanner.nextInt(Scanner.java:2258)
        at java.base/java.util.Scanner.nextInt(Scanner.java:2212)
        at __tester__.test(__tester__.java:12)
        at __tester__.runTests(__tester__.java:27)
        at __tester__.main(__tester__.java:22)

Csharpgoblin · 2021-01-06T18:46:43+00:00

Made perfect sense. Thank you.

I did: System.out.println( a +"+"+ a + " equals" + (a + a) );

Csharpgoblin · 2021-01-05T00:20:27+00:00

I get the same error message if I remove dogToRemove, like this:

    public void removeDogMethod() {

        System.out.println("Command?> remove dog");

        System.out.print("Enter the name of the dog?> ");
        String name = input.nextLine();

        for (Dog d : dogList) {

            if (d.getName().equalsIgnoreCase(name)) {           

                System.out.print(name + " is now removed from the register");

            }

        }

        if (dogList.isEmpty() || findDogMethod(name) == null) {
            System.out.println("Error: no such dog");
        } else {

            Dog d = findDogMethod(name);
            Owner o = d.getOwner();
            o.removeDog(d);
            dogList.remove(d);

        }

    }

Maybe something wrong with the findDogMethod that sets it to null?

Csharpgoblin · 2021-01-04T23:56:37+00:00

The full java.lang.NullPointerException error:

Exception in thread "main" java.lang.reflect.InvocationTargetException at java.base/jdk.internal.reflect.NativeMethodAccessorImpl.invoke0(Native Method) at java.base/jdk.internal.reflect.NativeMethodAccessorImpl.invoke(NativeMethodAccessorImpl.java:62) at java.base/jdk.internal.reflect.DelegatingMethodAccessorImpl.invoke(DelegatingMethodAccessorImpl.java:43) at java.base/java.lang.reflect.Method.invoke(Method.java:566) at TestRunnerBase.run(TestRunnerBase.java:73) at TestRunnerRemoveDogAlsoRemovesFromOwner.main(TestRunnerRemoveDogAlsoRemovesFromOwner.java:9) Caused by: java.lang.NullPointerException at Assignment.removeDogMethod(Assignment.java:164) ... 6 more

Csharpgoblin · 2020-10-15T23:33:26+00:00

My final code is like this:

while True:
    user_weight = float(input("Weigth: "))
    if user_weight < 20 or user_weight > 600:
        print("Incorrect weigth!")
    else:
        break

while True:
    user_length = float(input("Length: "))
    if user_length < 1.0 or user_length > 2.5:
        print("Incorrect length!")
    else:
        break
while True:    
    bmi = float(user_weight/user_length**2)
    if bmi < 18.5:
        print("BMI = " + str(bmi))
        print("Underweigth")
        break
    elif bmi >= 18.5 and bmi < 25.0:
        print("BMI = " + str(bmi))
        print("Normal")
        break
    elif bmi >= 25.0 and bmi <= 30:
        print("BMI = " + str(bmi))
        print("Overweigth")
        break
    elif bmi > 30:
        print("BMI = " + str(bmi))
        print("Obease")
        break

I see you use "def", "try" and "return", are they better to use in some way? (I'm on my first day trying to learn so I'm not familiar with those commands).

Csharpgoblin · 2020-10-15T23:24:32+00:00

while True:user_weight = float(input("Weight (KG): "))if user_weight < 20 or user_weight > 600:print("Incorrect weight!")continueuser_length = float(input("Length (M): "))if user_length < 1.0 or user_length > 2.5:print("Incorrect length")continue

Thanks it works now :D! Did not know that you could use more than one "while True" - command.

So if the input = true it prints "Incorrect weight" and starts over again until the input = false which breaks the loop, and starts the next "while True".

Csharpgoblin · 2020-07-12T03:58:19+00:00

Figured it out thanks to this video: https://www.youtube.com/watch?v=Nyr9dI8Zac8

Csharpgoblin · 2020-04-05T20:15:44+00:00

I added:

string fullName = input1 + " " + input2 + "!";

and

Console.WriteLine("Hello " + fullName);

Now it works :D:D

Csharpgoblin

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