Corporate Finance TT - England Q #1

CFA Level II Corporate Finance
#1

Hey all,

For this question (#1 on Corp Finance - England) Why do they not subtract additional net working capital for the year when they calculate operating cash flow after tax?

Thanks.

#2

They’re asking for the year’s after-tax operating cash flow. The additional net working capital for the year is considered an additional investment outlay that is recuperated at the end of the project’s life.

#3

Thanks for your response. Hmm… I see what you’re saying but that additional NWC seems to be required in that specific year. Which is an operating cash outflow for that year, no?

#4

Think back to the formula used to calculated after-tax operating cash flows: where in it do you see net working capital investments?

#5

Good call. I am thinking of CFO which is different from operating cash flow.

CFO includes net working capital whereas operating cash flow does not.

Thanks again.

#6

Is CFO different from operating cash flow(OCF)? I believe they are the same…