FCinv in FCFF/FCFE

Could somebody clarify for me how to calculate the Fixed Capital investment to deduct in the Free Cash Flow formulas when it is not explicitly given? I see sometimes depreciation is added and sometimes not? Does it depend on if Net Assets or Gross assets is given?

I thought it was the change in net fixed assets from one year to the next?

You are correct, if it is net, you add back depreciaiton.

exactly it is either

1. End gross PPE - Beg gross PPE OR

2. End net PPE - Beg net PPE + Depreciation.

Thanks! I thought this was it but I’ve seen it worded differently a couple times, was confused. Something to watch carefully on the exam!

So it would be net fixed assets + depreciation - (net fixed assets + depreciation) ?

Yes that’s right!

What about the WCinc … is that just (CA-CL)yr 1 - (CA-CL)yr 0?

I thought WC was increase in accounts receivable and inventory - increase in accounts payable and accrued liabilities. Those might be equivalent idk

For the increase in WC, don’t include cash

ya i thought so! Thanks for the clarification!

Do we make any adjustments to CL?

Can dreary or summerside clarity , is WCInv current assets - current liabilities year 1 -year0 , or is it increase in ar and inventory - increase in ap and accrued liabilities?

WCInv = (A/R1 + Inventory1 - A/P1) - (A/R0 + Inventory0 - A/P0)

It can also be written as (CA - Cash & Equivalents) - (CL - short term debt)

The way I do it is:

WCInv = (Delta ACA items) -(Delta CL items)

Use all items except cash, st debt, note payables, and current portion of lt debt, but use notes payable in FCFE as net borrowing.

I agree with Dreary,

Note payable and ST debt is part of net borrowing in FCFE, they are not in the WCinv

and CASH is the only item you have to take out of current assets.