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Hi folks,

The problem is there is a mix of financing and operating cash flows. The challenge is to adjust the calculations to include both or neither. Under the basic "how-to" guide there isn't a warning about cash flows going directly to the equity account. This is a problem with residual income models in general which require clean surplus accounting.

Looking at ADSK the cash taxes paid were much less than calculated using the accepted method because we didn't account for the offsetting APIC entry. These are real cash flows (as in they didn't have to pay those taxes and have that cash at there disposal)

As for what to keep and what to pull from the calculations - I will leave that up to the individual. As for ADSK I would remove the financing related deferred tax asset caused by the stock option deductions (as with hindsight its a much closer number to what ADSK actually paid which is what we are trying to get at in the first place - they don't call it cash taxes for nothing :)

Anyway that's what I am seeing.

Matthew

PS extra-curricular reading regarding clean surplus accounting: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=277353
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