So I passed level 1, but have always struggled with the multiple formulas that can be used to calculate this, particularly when net capital investment and working capital investment is involved. I need to wrap my head around this as this is pretty basic. I’m hoping maybe a clear explanation from someone will shore up what I’m missing here. From Schweser:
FCFF = NI + non-cash charges + [interest expense x (1-tax rate)] - net capital investment - working capital investment
FCFF = CFO + [interest expense x (1-tax rate)] - net capital expenditure
I’m thinking my struggle here is the difference between investment vs expenditure. Clearly, CFO =/= NI + non-cash charges only. The indirect method is much more involved in looking at changes in the balance sheet items. Should I be interpreting “working capital investment” as all of those missing pieces? As in : (- positive changes in AR and Inv or + (minus minus) negative changes in AR and Inv) ? What about the changes in the liabilities?
What about net capital investment vs. net capital expenditure?
Any help would be appreciated here…