What’s the difference between capital leases and operating leases?

Operating leases are used for short-term leasing of equipment and property, and do not involve ownership of anything. Operating lease expenses show up as operating expenses on the Income Statement. Capital leases are used for longer-term items and give the lessee ownership rights; they depreciate and incur interest payments, and are counted as debt. A … Read more What’s the difference between capital leases and operating leases?

How should you project Depreciation & Capital Expenditures?

The simple way: project each one as a % of revenue or previous PP&E balance. The more complex way: create a PP&E schedule that splits out different assets by their useful lives, assumes straight-line depreciation over each asset’s useful life, and then assumes capital expenditures based on what the company has invested historically.

How do you project Balance Sheet items like Accounts Receivable and Accrued Expenses in a 3-statement model?

Normally you make very simple assumptions here and assume these are percentages of revenue, operating expenses, or cost of goods sold. Examples: • Accounts Receivable: % of revenue. • Deferred Revenue: % of revenue. • Accounts Payable: % of COGS. • Accrued Expenses: % of operating expenses or SG&A. Then you either carry the same … Read more How do you project Balance Sheet items like Accounts Receivable and Accrued Expenses in a 3-statement model?

What are examples of non-recurring charges we need to add back to a company’s EBIT / EBITDA when looking at its financial statements?

• Restructuring Charges • Goodwill Impairment • Asset Write-Downs • Bad Debt Expenses • Legal Expenses • Disaster Expenses • Change in Accounting Procedures Note that to be an “add-back” or “non-recurring” charge for EBITDA / EBIT purposes, it needs to affect Operating Income on the Income Statement. So if you have one of these … Read more What are examples of non-recurring charges we need to add back to a company’s EBIT / EBITDA when looking at its financial statements?