347 647 9001+1 714 797 8196Request a Call
Call Me

Modeling Balance Sheet Differences as Cash for Facebook Model

February 16, 2012
, , , ,

But indeed if you have modeled it once, you would find that B School profs are right. It is just these two steps. Its just that the manual to do this is missing in B-Schools. I took you through the first step in the manual yesterday, so let me take you through the second step which is as simple as the first one and get the cash flow statement for Facebook in place.

Just Remember

Asset Liability

*The Rows in the chart indicate the impact on Cash

Hint!! Just Remember that Increase in Asset = Decrease in Cash

Then you can easily derive the rest!

Once you have classified the items of Balance Sheet, just take the difference of two consecutive year's balance of each item and put under the respective head (Operating, Investing & Financing). It should give you the corresponding head of Cash flow Statement.

Important Items to Consider

While taking the differences in the Balance Sheet, it is important to note the following points:

  • We do not consider Cash from Balance Sheet (It's a Current Asset): This is because we are building the cash flow statement and it would come back as a balancing figure

  • Difference in Retained Earnings is not really Investing: That would usually be the figure that you would get from Profit After Tax (PAT). Sometimes it is easy to project (as in the cash of Facebook) and sometimes you need to do a bit of Maths.

Indirect Method

So to calculate the Cash from operating activity, we start from Net Income (which would be like taking the difference of Retained Earnings) and adjust non-cash charges, non-operating items and changes in working capital (a balance sheet item).

Generally, any item that would be classified on the balance sheet as a long-term asset would be a candidate for classification as an investing activity and any item that would be classified on the balance sheet as either a long-term liability or equity would be a candidate for classification as a financing activity.

Cash Flow Statement for Facebook

We just take the difference in the historical Balance Sheet of Facebook and then adjust for the numbers from the P&L

Cash Flow Statement for Facebook

Next Steps

Now our Cash Flow Statement is almost in place. We just need to make a few more adjustments and calculations and we are done with the Cash Flow Statement. Tomorrow we will learn how to calculate the closing cash balance and understand how it is linked with the B/S.

My experience tells me that, Preparation of Cash Flow Statement is like a Giant Step in your Modeling Career. Getting it right in the initial part of modeling career is a real high. I do hope that you are enjoying this process fully!

You can download the empty template file here.

We hope this tutorial gave you better insights on Modeling Cash Flow Statement and Balance Sheet Differences as Cash for a Financial Model.


About the Author

Pankaj Baheti is a CFA Level III Candidate currently working with Pristine. Prior to Pristine, he was working with Achi Group. He has done his Post Graduate Diploma in Management and loves trekking in the hills of Arunachal.


Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to and we will rectify it.

Popular Blogs: Whatsapp Revenue Model | CFA vs CPA | CMA vs CPA | ACCA vs CPA | CFA vs FRM

Post ID = 12319