I know the general definition is “current assets - current liabilities”, but when calculating FCF you don’t include cash or marketable securities. However, on the liability side, aside from accounts payable I don’t know what to include. In one example problem (Reading 42 #20 in CFAI book), you include accrued taxes and expenses, but not notes payable. Since both accrued taxes and expenses and notes payable are part of current liabilities, why isn’t notes payable also part of the FCF calculation?
notes payable is a part of short term debt – and financing stuff do not go into the FCFF calculations. Clearly states in the text Working Capital Excludes: Cash and Cash Equivalents Notes Payable Current Portion of LT Debt Cash and Cash Equiv. explain change in Cash. Notes payable and Current Portion of LT Debt - are liabilities with an explicit interest cost - so they are financing rather than Operating Items. For FCFF - what goes into CA - CL are ONLY OPERATING ASSETS AND LIABILITIES. HTH
Thanks for the explanation. That actually makes sense