Mergers, Acquisitions, Divestitures, and Other Restructurings, + Website

Chapter 8Cash Flow Statement

As with any standard financial model, when making cash flow statement projections, many of the line items come from supporting schedules: the depreciation schedule, working capital schedule, and debt schedule. So, cash flow statement projections cannot be complete without building those supporting schedules. Further, because this is a merger, and because said supporting schedules are based largely on balance sheet information, we need to first create an adjusted balance sheet, showing what the balance sheet will look like after transaction close, before constructing these auxiliary schedules. It is with that adjusted balance sheet that we can create the supporting schedules and then link in the appropriate line items cash flow statement. All “other” line items in the cash flow statement will be independently considered, and will be either taken from the acquirer only, a consolidation of the acquirer and target, or projected independently, just as we discussed handling “other” or “nonrecurring” line items in the income statement.

So we will first project as much of the cash flow statement as we can, and then we will move on to the balance sheet adjustments, which will allow us to create depreciation and working capital schedules. We can then link the appropriate line items back into the cash flow statement. See Appendix 1 for the order of building a full-scale model.

Cash Flow from Operating Activities

Cash from operating activities begins with net ...