When trying to work out the change in WCInv to calculate FCFF/FCFE… Which one of the following is true/false? 1) Change in WCInv = Change in [(Current Assets) - (Current Liabilities)] 2) Change in WCInv = Change in [(Current Assets-Cash) - (Current Liabilities)] 3) Change in WCInv = Change in [(Current Assets-Cash) - (Current Liabilities-Notes Payable)]
I think the third one is true… You need to remove the notes payable because it is included in the net borrowing part
third is true, except it should be (Current Liab - NP - current portion of LTD) for the liabilities side. Very possible with simplified balance sheet you might just need to do CA - CL, or (CA- cash) - CL
I agree. The third one is true
technically they could all be true if the company has 0 cash, no marketable securities, and no notes payable… but ya, the third one is right.
^ and even this would only be true if it had 0 cash, no marketable securities and no notes payable the previous year as well as the current. tough to survive a full year and have a 0 cash balance, but I’m sure there are small companies out there that have done it.