What should companies factor into their cash flows in the year an asset is sold or written down?

In the context of cash flow analysis when an asset is sold or written down, companies should incorporate free cash flow adjustments for that year. This reflects the actual economic impact of the transaction on the company’s overall cash position. When an asset is sold, it often generates cash inflow that should be included in the cash flows for that period. Alternatively, if an asset is written down, it may involve recognizing a loss, which affects the net income and thus the cash flows available to shareholders.

Free cash flow is a crucial metric because it accounts for the cash that a company can generate after laying out the money required to maintain or expand its asset base. Adjusting free cash flow ensures that the analysis accurately reflects the cash inflows from the sale or the reductions in cash flow due to asset impairments, providing a clearer picture of the company's financial health in that specific year.

Incorporating these adjustments helps stakeholders understand the effect on liquidity and the cash available for reinvestment, dividends, or debt repayment, which are central to valuation and financial planning. Meanwhile, other factors like projected revenue, total asset value, or market capitalization do not provide a direct measure of the cash movement resulting from the sale or write-down of an asset in that specific year.