FCFE: WCInv

CFA Level II Equities
#1

Hi guys,

Quick question on FCFE and more particularly on WCinv calculation. Pls confirm the following:

WCInv = (Current Assets - Current Liabilities) N - (Current Assets - Current Liabilities) N-1

or

WCInv= (WCInv - Cash) N - (WCInv - Cash) N-1

Thanks

#2

Technically speaking,

WCInv = (Current Asset - cash) - (Current liabilities - debt);

change in WCinv = (WCinv)n - (WCinv)n-1, if this figure is positive representing you had an increase in WCinv requirement, you subtract this in the FCFE formula because an increase in asset represents cash outflow.