working capital for FCF

page 355 of the CFA asset val book says when computing WCInv for FCF, don’t include cash or cash equivalents in the asset side, or notes payable and the current portion of LT debt on the liability side. I was just thinking CA-CL and got the calc wrong on sample 2. thought I’d point it out since it seemed tricky.

also, for WCinv in capital budgeting , is it just AR-AP? or is it exactly like the one for FCF?

yes…its the same for both: CA (noncash) - CL (non-debt) i used to get tripped up on that…figured it out couple weeks ago…

not sure exactly, but I know it would include increases in inventory, too. for those problems it seems like it usually tells you, but you never know.

My guess is that CFA exams want to test the logical relationship among EBITDA, EBIT, NI, CFO, CFF & CFFE not net picking on minute details. They would probably give us the change in WC in the question. WC change details were tested in L1. I hope that would be the case.

well, they didnt think of that in sample 2, Tom

Yeah how do you get the WC Inv for CFAI Sample 2 test Q#7 ??

it’s Change in Current Assets (excluding Cash) - Change in Current Liablitites (non interest bearing) they DO NOT include cash and cash equivalents or current portions of long term debt in calculating Working Capital Investments - This applies to both FCFF calculations as well as Capital Budgeting related questions…

great stuff! this is something that confused me loads of times - I’m much more clearer about it now, thanks!