I am using Change in Working capital to calculate FCFE. I read in some white papers that Operating Working Capital should be used instead of Working Capital (ie remove Cash + Marketable securities form current assets, remove current portion of long term debt from current liabilities). Still there are plenty of extraneous items (current assets from discontinued operations etc etc). If i calculate change in Operating Working Capital just by defining Operating Working Capital as Operating Working Capital = A/C receivable + Inventory - A/C Payable. is that theoretically too far off. Again the formula uses Change in Operating working capital Year over Year and not Operating working capital.
What exam are you preparing for?
no exam. just doing valuation on companies
It should always be operating working capital in FCFF/FCFE calculations. You are correct to exclude cash/mkt securities.