Net working capital

CFA Level II
#1

I know that this topic has been discussed many times, but I still get different answers from different people. So I want to get some clarifications once and for all

What to include in CA and CL when calculating net working capital for FCF?

CA:

  1. Cash and cash equivalents

  2. Inventory

  3. Account receivables

  4. Accrued revenues

  5. Prepaid expenses

  6. Deferred expenses

  7. Notes receivables

CL:

  1. ST debts + current portion of LT debts

  2. Account payables

  3. Accrued expenses

  4. Unearned/ deferred revenues

  5. Notes payables

From my understanding we should exclude 1 and 7 for CA and 1 and 5 for CL. Am I correct?

#2

You have to exclude cash and eqivalents from WC. 1 and 7 in assets position may be considered as common cash & eqivalents. Each time when you exclude for any calculation purpose certain position from assets you must do same in liabilities, thus short time financial liabilities must be excluded. Those are with maturity in current year, notes payables are perfect fitted in this position. So, 7 in asset and 5 in liabilities are redundant.

#3

you are on point flashback…

#4

If you realize well, CA and CL for NWC are operating requirements only, financial items (including cash) are excluded.

#5

how about finance lease obligations?