Free Cash Flow of Woolworths Limited
Answer
Q.2.
As per CFI, the definition of a Free cash flow statement is that it is a statement of a company that calculates the cash available to the company after reducing Capital Expenditures from Cash from Operations. The statement calculated the amount of cash generated by a business, after accounting for investment in long term/ fixed assets and net increase/decrease in working capital to be utilized by the company.
Mathematically, FCF is calculated as-
FCF = Net Operating Profit After Taxes - Net Investment in Operating Capital
For Woolworths Limited, we have utilized the annual financial statements available on the website for the past 5 years to prepare the FCF statement.
Following are the assumptions on the basis of which we have made the calculations-
- All the information provided on the website is correct
- All the calculations made in the financials and reports are accurate
- There is not any other expenses like lease or interest expense apart from those stated in the financials
- Tax Rates have been applied correctly to determine the tax payable amount (which is 30% of income in this case)
To start off, we considered the Income of the company before the extraordinary and non-cash items as the starting point of our calculation, and then adjusted the profits with the required items, i.e. depreciation and amortization expenses, deferred taxes and other miscellaneous items.
The profit trend for the continuous 5 years is as shown below-
Woolworth Limited Free Cash Flow Statement from 2014-2018 |
| Particulars | 2018/6/30 | 2017/6/30 | 2016/6/30 | 2015/6/30 | 2014/6/30 |
| Net Income before Extraordinary items | 1,795 | 1,593 | (2,311) | 2,137 | 2,458 |
| Add: Depreciation | 1,103 | 1,061 | 1,076 | 1,064 | 996 |
| Add: Deferred Taxes | 98 | 122 | (362) | (93) | (50) |
| Add: Other extraordinary items/ funds | (52) | 362 | 2,075 | 106 | 2 |
| Net operating profits after tax (NOPAT) [A] | 2,944 | 3,138 | 478 | 3,214 | 3,406 |
| Capital expenditures (only fixed assets) | - | - | (1,938) | (2,131) | (1,841) |
| Less/Add: Increase/ Decrease in Working capital [Refer table 1} | -10 | -12 | 1883 | 136 | 74 |
| Total Operating Capital [B] | -10 | -12 | -55 | -1,995 | -1,767 |
| NOPAT | 2944 | 3,138 | 478 | 3,214 | 3,406 |
| Less: Net Investment in Operating Capital | -10 | -12 | -55 | -1,995 | -1,767 |
| Free Cash Flows [A – B] | 2934 | 3126 | 423 | 1219 | 1639 |
Table 1: Calculation for change in working capital
| Particulars | 2018 | 2017 | 2016 | 2015 | 2014 |
| Change in Receivables | -142 | 3 | 29 | -28 | -21 |
| Change in Inventories | -60 | 305 | 204 | -161 | -421 |
| Change in Accounts Payable | 129 | 323 | -172 | 407 | 524 |
| Change in Income Taxes Payable | 28 | 45 | -60 | -59 | -42 |
| Change in Other Assets/Liabilities | 35 | -688 | 1,882 | -23 | 34 |
| -10 | -12 | 1883 | 136 | 74 |
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