CFAI, page 411, #13 FCI: To compute FCI, it is fairly clearly written CAPITAL EXPENDITURES for 2000 = 38. My question is: why is CAPITAL EXPENDITURES 38 for year 2000, and not the difference between 2000 and 1999? Meaning subtracting the 1999 value from 2000 value? WCI: I guess in order to compute WCI, we must: (change in current assets) - (change in current liabilities), and this gives us WCI. Why do we take the change in (CA-CL) to compute WCI, but for FCI we just take the 2000 value? Thanks in advance for any responses
Those are definitional stuff. Working capital = Change in Current Assets - Change in Current Liabilities. FCInvestment is provided to you. Usually on the CFA curriculum that would be the case. However, if it were not provided - you would use the change in PP&E items on the balance sheet. But remember there, that there could have been a sale of equipment. So you would have to end up using the Gross PP&E items if provided. If Gross PP&E is not provided - use Net PP&E + Accumulated Depreciation for each period and take the difference.
CPK thanks for responding. I hope I understand. I’m having a tough time with this FCI/WCI stuff. You are saying: If they provide FCI on the Balance Sheet, Capital Expenditures = 38 then just accept that and say thanks. If it’s not provided, then compute FCI … using the formulas (involving gross and net PPE), and I use the change in values on the balance sheet, like what they did on question 13 to compute WCI. Thank You.