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Up27
When we calculate change in working capital investment in order to find out FCFF and FCFE, do we always leave out the cash and short term investments from the current assets and leave out the long term debt from the current liabilities?
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Up5
Thanks @Alta12. I have a question about the ST debt part. In the CFAI readings (Reading 34) it says: when finding the net increase in working capital for the purpose of finding free cash flow, we define working capital to exclude cash and cash equivalents as well as notes payable and the current portion of long-term debt.
So that means from the current liabilities we would be leaving out notes payable and the current portion of L-T debt. Is ST debt the same as notes payable? -
Up4
@shantala notes payable is a form of ST debt.
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Up3
Thanks for clarifying. Therefore we have
Change in working capital investment = (current assets – cash and cash equivalents) – (current liablities – ST debt – current portion of LT debt).Does that look right?
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Up0
WC Investment = Current Assets – Cash – (Current Liabilities – ST Debt)
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Up0
@shantala that is correct!
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